Clearing Division GLOBAL PREMIER EXCHANGE

The Clearing Division of KRX (in short, “KRX Clearing”) performs clearing, settlement, default risk management in the transactions that take place in Korean Securities Markets (KOSPI, KOSDAQ, KONEX), Listed Derivatives Markets and OTC Derivatives. KRX Clearing became an independent division as of April 2021 taking note of potential conflicts of interest in the trading functions on the one hand and clearing and settlement functions on the other, and to strengthen the risk management framework for Korean capital market.

To ensure stable and smooth functioning of settlement arrangements for transactions, KRX Clearing plays a pivotal role as a Central Counterparty (CCP). Its clearing function involves transaction confirmation, debt acquisition, deduction, confirmation of settlement securities, settlement item, settlement amount, settlement execution guarantee, follow-up measures on settlement failure, settlement instructions in relation to transactions on both the Securities and the Derivatives Markets. Its settlement function includes delivery of items, payment of money in the Derivatives Market.

In response to the financial crisis of 2008, over-the-counter(OTC) derivative contracts “should be cleared through central counterparties(CCP)” as was mandated and reiterated at 2009 and 2011 G20 summits. South Korea amended its Financial Investment Services and Capital Markets Act (FISCMA) in 2013 and authorized KRX (its Clearing Division in particular) to perform CCP clearing function for OTC derivatives transactions. KRX Clearing started providing clearing services for Korean Won-denominated Interest Rate Swaps(KRW IRS) in 2014 and expanded its services to US Dollar-denominated IRS (USD IRS) in 2016, in line with its efforts to lower risks in Korea’s OTC Derivatives Market.

The CCPs have been on the spotlight since the 2008 financial crisis as critical financial market infrastructure for a sound and stable financial market. KRX Clearing monitors its Members’ settlement execution capabilities round-the-clock to forestall a default risk and controls the risk probability by maintaining margin and collateral amount. Settlement resources such as joint compensation fund, settlement reserves, etc. are set aside to be used in gradual phases as a means to mitigate contagion in the event of default, and also to normalize the settlement execution expeditiously.

KRX is an internationally authorized CCP. KRX Clearing upgraded and transformed its system and infrastructure as a subsequent move to be more competitive and better aligned with global standards. As a result, KRX obtained recognition from major regulatory agencies – Financial Services Agency(FSA) of Japan (June 25, 2014), Commodity Futures Trading Commission (CFTC) of the U.S. (October 26, 2015), and European Securities Markets Authority (ESMA) of European Union (April 22, 2016), having a reputation for its excellence in risk management capability in the Korean capital market.