S. Korea plans to set up derivative clearing house

SEOUL, Aug. 26 (Yonhap) -- South Korea's financial watchdog said Wednesday it plans to establish a clearing house for financial derivatives traded over the counter (OTC) in a bid to ensure a stable financial system and boost investor protection.

The financial regulator "plans to create a clearing house to reduce risks of
counterparty defaults and also set up a trading registry to regulate
transactions," Financial Supervisory Service (FSC) Gov. Kim Jong-chang said
during a conference in Seoul.
A clearing house centralizes liquidation or settlement of privately-traded
derivative contracts, preventing a default by one trader from leading to a chain
of counterparty defaults.
"FSC plans to push for an infrastructure reformation in the OCT derivative market
with a long-term perspective," the governor said.
The watchdog currently is focused on simultaneously facilitating over-the-counter
derivative trading in South Korea, as well as ramping up regulation, according to
Kim.
"The local OTC derivative market is still in an early stage of development," the
governor said.
The outstanding value of South Korean banks' OTC derivative contracts stood at
4.8 times the country's gross domestic product, compared with 12.2 in the U.S.
and Japan's 6.6 as of the end of 2008, he added.