South Africa’s financial regulators plan to finalise new rules requiring over-the-counter (OTC) derivatives to be centrally cleared in the next two years to improve transparency and reduce risk.

“It is envisaged that the final rules will come into effect by 2028,” the South African Reserve Bank said in an emailed response to Bloomberg questions. “However, the ability of market participants to comply with the OTC central clearing rules will be subject to the licensing and operationalisation of an appropriate central counterparty.”

Comments closed June 5 on a discussion document issued by the Prudential Authority and Financial Sector Conduct Authority seeking public input on proposed eligibility criteria for the central clearing of OTC derivatives, in line with Group of Twenty commitments.

The document proposed that rand-denominated interest-rate swaps and forward-rate agreements be the first OTC instruments subject to mandatory central clearing, with additional derivatives to be identified through a phased and structured approach informed by industry feedback and market-data analysis.

South African rand-linked OTC derivatives traded onshore and offshore exceed 150-trillion in value, according the the central bank.

Ahead of the final rules being published, the PA and FSCA plan to issue a joint standard for consultation between April 2027 and March 2028, together with a draft joint determination containing the products to be considered for mandatory OTC central clearing, the bank said. The standard will also set out the OTC derivative eligibility criteria for central clearing, it said.

Regulators globally have been undertaking financial market reviews to reduce the risk of a damaging counterparty failure. South Africa adopted a phased road map in 2022 to implement a mandatory central clearing framework for OTC derivatives.

In the discussion document, the PA and FSCA said centralizing and standardizing the clearing of certain OTC derivative transactions would make the system more transparent and resilient to shocks, contributing to the stability of the financial system.

To date, South Africa has licensed one central counterparty for listed derivatives transactions on the Johannesburg Stock Exchange — JSE Clear.