Singapore’s Financial Sector – Positioning for the Upturn

Risk Management in Over-the-Counter (OTC) Derivatives Market

Singapore has traditionally been a leading centre for the trading of foreign exchange (FX) and over-the-counter (OTC) derivatives. In 2007, the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity conducted by the Bank of International Settlements (BIS) placed Singapore as the fifth largest FX trading centre globally and the second largest OTC derivatives trading centre in Asia.

Since the financial crisis, trading activities globally have been impacted partly due to heightened counterparty risk concerns. To mitigate such risks and improve market transparency in the OTC derivatives market, authorities globally have called for bilateral trades to be centrally cleared.

Responding to the heightened risk management needs of the financial industry in the Asian timezone, Singapore Exchange (SGX) is developing a central counterparty clearing facility for OTC financial derivatives, which will be an expansion of its existing clearing service for OTC energy and freight derivatives. Such an initiative will enhance Singapore’s role as a regional risk management centre and promote market stability.