Dubai:
Dubai Financial Market (DFM) on Tuesday announced its intention to launch Central Counterparty (CCP) clearing as part of its constant efforts to further reinforce market structure based on international best practices.
The CCP is a specialised clearing entity that will novate trades on DFM for settlement and it is expected to be part of a new DFM post-trade wholly owned subsidiary, which will consolidate all DFM post-trade business.
This initiative is also in line with the CCP regulations issued last year by the Securities and Commodities Authority (SCA), wherein DFM played a pivotal role with the market regulator in the fruition of the CCP regulation.
“With the support of the new CCP regulations, DFM is ready to embark on the next phase of improving its legal and operational market infrastructure to ensure that DFM remains at the forefront of the regional exchanges and further strengthened Dubai’s leading position as international capital markets hub,” Essa Kazim, Chairman of DFM said in a statement.
With the specialised CCP clearing entity, DFM expects to not only better ring-fence risks associated with clearing and settlement of trades but also ensure that there is more efficient use of collateral by market participants thereby creating room for potential increment of market liquidity.
Market participants generally are required to ensure 100 per cent collateral value for purchase trades, which under CCP clearing will be rationalised in accordance with internationally recommended best practice of margining. In line with this development, the specialised clearing entity will also be creating a settlement default fund consistent with market best practice.
DFM will begin consultation of the new DFM clearing model in the second quarter of 2017 and plans to commence the CCP Company’s operations early 2019.
