TAIWAN: TAIFEX Announces Launch of Centralized Settlement Mechanism

Monday July 25 2022

On 25^th July 2022, the Taiwan Futures Exchange (TAIFEX) announced that in order to strengthen the stability of the financial market and keep in line with the trend of international supervision, the Futures Exchange opened a centralized settlement business.

The storefront transaction is a transaction carried out outside the exchange, usually a negotiated transaction between financial institutions, or by the broker as an intermediary, by telephone or network to ask the customers who want to buy and sell the acceptable price and trading conditions, and finally the broker matches the buyer and seller.

Through centralized settlement at the head of the store, the risk of default in the sale can be transferred to the futures exchange, and the creditor-debtor relationship between the original buyer and seller will become the relationship between the futures exchange and the buyer and the relationship between the futures exchange and the seller. Traders no longer need to face a variety of different risk counterparties, only need to face the futures exchange, which can simplify risk management operations and reduce costs.

The value of each centralized settlement contract is evaluated by the futures exchange according to the market price every day, and the profit and loss receipt and payment and risk management can be handled, which can grasp the risk status of each participant in real time and warn in advance.

With the launch of the centralized settlement mechanism of the store head on the Futures Exchange, the localization of financial services can be carried out by the industry nearby in China, which will greatly improve the convenience of settlement and reduce the cost of settlement.
The settlement mechanism is the central nervous system of the financial system, and only by ensuring the smooth settlement can build trading confidence and let the market flourish. The centralized settlement mechanism set up by the Futures Exchange not only ensures the safety of Chinese transactions and reduces the cost of financial operators, but also creates a favorable trading and hedging environment, which is expected to further attract foreign investment into China’s market and enhance international visibility.

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