Despite the growing role of FX derivatives in the market as a whole central
clearing has been limited in this segment and unlike other derivatives classes.
Indeed, rules on uncleared FX derivatives positions are not fully implemented
yet but higher capital requirements will probably incentivise market participants
to move towards CCPs in the coming years.
According to the Financial Stability Board, it is currently
technically feasible to centrally clear for example around
20-40% of new FX derivatives transactions in China and Singapore, and even
60-80% in India. Other derivatives classes provide indications of what may
happen to the FX market, too: clearing volumes are already relatively high both
in interest rate and credit derivatives, around 75% for the former.
In these markets, central clearing at the moment largely takes place in London. This is
mostly due to netting of trades, a practice that reduces the number of
transactions and the collateral needed and thereby lowers costs for clearing
counterparties. Nonetheless, central clearing will probably not cluster in a single
location in the future. For example, after Brexit the clearing of euro-
denominated derivatives is very likely to shift to one of the euro-area countries.
This will reduce netting benefits for trading counterparties and open the door for
CCPs in other regions, not only in derivatives classes where central clearing is
important already but also in other segments like FX. Hence, with a general
decentralisation of clearing services, Asian currency derivatives are also likely
to be cleared locally, i.e. Mainly in domestic CCPs or in New York, in the coming
As a result, trading in Asia will probably gain further traction and take on
an even more important role globally. On the other hand, such a fragmentation
will lead to lower netting benefits and higher collateral costs for market