The New Derivatives Landscape in Chile

 

THE NEW DERIVATIVES LANDSCAPE IN CHILE

July 2015

Different developments are affecting the way derivatives will be traded and cleared in Chile in the near future. First, the Chilean main exchange, the Bolsa de Comercio de Santiago was recently given green light by the securities regulator (SVS) to a new regulation on derivatives trading and clearing and settlement, paving the way to the development of an –until now inexistent—exchange traded derivatives market. Trades are to be cleared by CCLV Central Counterparty, a subsidiary of Bolsa de Comercio, which currently clears non-derivative trades only. On a different –but related– playing field, the banking industry is set to launch its new central counterparty for OTC traded derivatives named Comder on August 2015. This market segment is relatively significant for Chilean standards amounting to a notional amount of US$ 280 billion, including FX and Interest Rate Swaps as well as FX Non Delivery Forwards. The derivatives that will be cleared on this platform will be short-term NDF (Non Delivery Forwards) between CLP and UF and USD among banks traders initially, followed by the same instruments being cleared by indirect participants. For a next stage, a facility for clearing Interest Rate Swaps on Comder will be launched.

The illustration below, shows what is the current and future situation as well as the main players in the derivatives market in Chile. It can be observed that domestic banks are in the center of the derivatives activity in Chile, where trading among them explains the largest volumes in this segment. In an outer layer are the securities brokers, which practically don’t trade among them, and this is where the new derivatives exchange trading segment is going to play a major role. But trading between securities brokers and domestic banks, does exist and, while it is expected to continue to be traded OTC, will most probably be cleared in Comder. Retail investors will continue to be served mainly by securities brokers, especially in the FX forwards segment. Institutional domestic investors, mainly Pension Funds and Mutual Funds, will be able to trade in the new derivatives exchange and will be benefit for the reduction in settlement risk now arising from the bilateral settlement mechanism used.

 DERIVATIVES TRADING ACTIVITY IN CHILE