The Korea Exchange is expected to face sanctions for failing to comply with the Central Counter Party (CCP) regulations of the U.S. Commodity Futures Trading Commission (CFTC).
According to the Chosun Biz on Dec. 19, the U.S. CFTC is planning to confirm and inform the Korea Exchange of its actions following the exchange’s failure to comply with the CCP regulations.
The CFTC pointed out that the exchange did not accumulate the resources necessary to implement the settlement in the course of its over-the-counter derivative CCP operations based on the CFTC standard. It sent an official document containing the contents to the exchange in August.
The U.S. and Europe require their financial institutions to trade only in offshore CCPs with qualifying certificates. The Korea Exchange is currently working business with appropriate CCP certifications from the U.S. and Europe obtained in 2014 and 2016, respectively.
The U.S. CFTC requires CCP to build a joint fund daily through stress tests to cope with the risks posed by financial institutions in the process of trading over-the-counter derivatives. However, the exchange consolidated funds on a quarterly basis and eventually, when the exchange reported as of the end of last year, the daily joint fund was less than the CFTC regulation.
It is highly likely that the sanction regarding the violation of the U.S. CFTC regulations will be only a fine. However, there are concerns that the exchange may lose its CCP certification in the U.S. and Europe.
The Korea Exchange emphasized that the violation was not an issue that could lead to the cancellation of the certification. "The amount of funding was not at all problematic in performing CCP functions, but it was caused by a difference in the measurement method." said a Korea Exchange official.
