South Korea FSS extends OTC derivative margin exchange rules

South Korea's Financial Supervisory Service (FSS) has announced a one-year extension of the guidelines for the margin exchange system regarding non-centrally cleared over-the-counter (OTC) derivatives. The extension will run from September through August of the following year.

The system requires counterparties in OTC derivative transactions to exchange collateral to mitigate default risks and systemic instability. The regulations distinguish between initial margin, which manages potential default risks at the start of a transaction, and variation margin, which manages daily exposure resulting from market price fluctuations.

Starting in September, the number of financial institutions subject to initial margin requirements will increase to 143, including seven new entities such as Bank of China and SBI Savings Bank. Conversely, two firms, including Carrot General Insurance, will be removed from the list. The number of institutions required to exchange variation margins will rise to 165. The FSS stated it will continue to monitor implementation to prepare for potential increases in global financial market volatility.