Central clearing of overnight index swaps based on the Korea Overnight Financing Repo Rate, or KOFR, has grown roughly tenfold in the first year since its launch. The Korea Exchange said it will extend the longest maturity eligible for clearing to 30 years and begin follow-up rule changes to support the shift in benchmark rates from the certificate of deposit rate to KOFR.
The Korea Exchange announced the results and future plans on the 26th, marking the first anniversary of KOFR OIS central clearing. KOFR is a risk-free benchmark rate calculated from actual overnight repurchase agreement transactions backed by treasury bonds and monetary stabilization bonds.
From Oct. 27 last year through the end of September this year, KOFR OIS accounted for about 25% of swap clearing. That exceeded the 10% target set by the Financial Supervisory Service for the first year. Of the exchange's 53 clearing members, 37 take part in KOFR OIS clearing.
The maturity profile is also lengthening. While 69.9% of the total amount is concentrated in one-week contracts, the share of maturities longer than one year rose to 18.1% from 3.3% at the start of the year. Contracts longer than five years expanded to 2.3% from 0.4%.
The exchange plans to raise the maximum maturity for KOFR OIS clearing to 30 years from the current 20 years in the first half of next year. It will also incorporate additional market conventions, such as day-count calculations and holiday adjustments.
The exchange is also pursuing rule changes in preparation for the phased retirement of the CD rate. It will review the introduction of basis swap clearing to manage the spread between CD-based interest rate swaps and KOFR OIS, and will draw up plans to unify the discount curve used to value interest rate swaps around KOFR.
"We plan to continue refining the relevant rules so that we can contribute to more active trading of longer-dated KOFR products and to the early establishment of KOFR-centered financial transactions," an exchange official said.