OTC Clearing Hong Kong Limited (OTC Clear), the central counterparty subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), has begun offering clearing services for Hong Kong Dollar Interest Rate Swaps (IRS) linked to the Hong Kong Dollar Overnight Index Average (HONIA). This makes it the first clearing house to provide such services, reflecting ongoing shifts in global interest rate benchmarks, according to their press release.
The first centrally cleared HONIA IRS contract was completed between Bank of China (Hong Kong) Limited (BOCHK) and the Hongkong and Shanghai Banking Corporation (HSBC). HONIA has been identified as an alternative reference rate to the Hong Kong Interbank Offered Rate (HIBOR) as part of broader financial benchmark reforms.
Authorities in Hong Kong have not announced plans to phase out HIBOR, but they are encouraging the development of HONIA-based financial products. The Hong Kong Monetary Authority has pushed for greater adoption of risk-free rates, in line with international regulatory efforts to move away from traditional interbank offered rates.
Proxy methodology
To aid market participants in adopting HONIA-based swaps, OTC Clear has developed a proxy methodology to simulate a HONIA curve, aimed at improving pricing transparency. This service is expected to be available by late July.
