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SEOUL, March 6 (Reuters) - South Korea plans to require interest rate swap contracts to be cleared through the Korea Exchange as part of efforts to boost regulation on over-the-counter derivatives transactions, its regulatory agency said on Wednesday.
The Financial Services Commission (FSC) plans to finalise full details by June on the operation of a central clearing house for such transactions but the interest rate swap (IRS) contracts will certainly be included, an official said.
The Korea Exchange, which currently operates the country's main stock exchange, will also act as the central clearing house under a law revision approved by the parliament late on Tuesday.
Policymakers from around the world have agreed to boost regulation on over-the-counter derivatives transactions after the lack of regulation and information on them had been blamed for contributing to the 2008 global financial crisis.
"Once this law is enacted and the central clearing system is established, counterparty risks will be reduced," the FSC said in a statement. "Details about the over-the-counter transactions and the scale of the risks involves will also be known in real time, facilitating systematic market-risk management."
IRS contracts accounted for more than 60 percent of the over-the-counter financial derivatives transactions in South Korea, that the commission valued at 6,904 trillion won ($6.35 trillion) at the end of 2011.
But sources at foreign banks operating in South Korea have voiced concerns in recent months that they could be shut out of the IRS market should the local clearing house fail to meet standards imposed by their home authorities.
South Korea may also require non-deliverable forward (NDF) transactions to be cleared through the Korea Exchange at a later time, the commission official said, although he could not say when such a decision will be made. ($1 = 1087.0000 Korean won) (Reporting by Se Young Lee; Editing by Choonsik Yoo)