OTC Clear starts offering clearing services for HONIA-based IRS contracts

Maria Nikolova

The Hong Kong Dollar Overnight Index Average (HONIA) reference rate is the alternative to the Hong Kong Interbank Offered Rate (HIBOR).

Hong Kong Exchanges and Clearing Limited (HKEX) today announces that that its central counterparty (CCP) subsidiary, OTC Clearing Hong Kong Limited (OTC Clear), has become the first clearing house to offer clearing services of Hong Kong Dollar Interest Rate Swap (IRS) contracts benchmarked to the Hong Kong Dollar Overnight Index Average (HONIA) reference rate.

This first centrally cleared HONIA IRS contract was between Bank of China (Hong Kong) Limited (BOCHK) and the Hongkong and Shanghai Banking Corp. HONIA is the alternative reference rate to the Hong Kong Interbank Offered Rate (HIBOR).

Last year, the Treasury Markets Association last year identified HONIA as the alternative reference rate to HIBOR, as part of an interest rate benchmark reform. The Hong Kong Monetary Authority has been encouraging more HONIA-based products be introduced in the market. There is, however, no current plans for HIBOR to be decommissioned. To support the development of the HONIA market, OTC Clear has developed a proxy methodology that simulates a HONIA curve, helping to provide greater transparency to market participants. Such services will be available to the market in late July.

With the key US dollar interest rate benchmark, the London Interbank Offered Rates (LIBOR), set to be decommissioned after end-2021, regulators globally have been working to adopt new interest rate benchmarks. OTC Clear has introduced clearing services for swaps linked to the euro short-term rate and the secured overnight financing rate, to help facilitate clearing members in their transition to alternative reference rates.

OTC Clear provides clearing and settlement services for over-the-counter derivative transactions. The launch of HONIA-based products enriches OTC Clear’s Hong Kong dollar IRS product suite, as well as to facilitate the adoption of HONIA swaps in the derivative markets.

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