The clearing service for interest rate swaps (IRS) denominated in the Korean won (KRW) has seen an increasing number of deals, a rising nominal value and a growing number of participants since its launch, according to the Korea Exchange (KRX).

Following the approval by the South Korea Financial Services Commission (FSC), the KRX began providing clearing services for KRW-denominated IRS on March 3.

By the end of March, the exchange had cleared 105 deals with a nominal value of KRW2.86tr ($2.7bn). The exchange said that 20 financial institutions have participated in the clearing of these securities, including 13 firms offering structured products in South Korea, among them Daishin Securities, Daewoo Securities, Mirae Asset Securities and Woori Investment & Securities, and seven commercial banks (Kookmin Bank, Standard Chartered First Bank, Shinhan Bank and Citi Bank). The KRX stated in its report that about 57.1% of registered members have already participated in the clearing service.

The KRX said that as the registered members are voluntarily participating in the clearing service it expects to see successful execution of mandatory clearing of KRW-denominated IRS starting from July, part of an agreement that was reached at the Pittsburgh G20 Summit in 2009.

About 60.8% of the total deals worth KRW1.74tr ($1.64bn) were made between securities firms and commercial banks, while 26.5% of the clearing deals were made between the commercial banks, with a value of KRW760bn ($719m). The clearing deals between the securities firms stood for 12.7%, or KRW363bn ($344m).

Maturing IRSs with a tenor of less than a year accounted for 55.1% of the total deals, with most of the deals executed through interdealer brokers including Nittan Capital Korea, BGC Capital Markets, Seoul Money Brokerage Services and Tradition Korea. One-year maturing IRSs accounted for 26.9% of the total deals, followed by nine-month maturing IRSs and two-year maturing IRSs.

While many of the IRSs deals in the market have a maturity up to 30 years, KRX only currently provides IRSs with a tenor of up to ten years.

SRP data shows that there a total of 95 outstanding products dominated in Korean won. Among them, a total of 39 products are linked to the exchange rate between the Korean won and the US dollar and 23 products are linked to the exchange rate between the Korean won and the US dollar in the US database.

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