South Africa is moving toward a major overhaul of its over-the-counter derivatives market, with regulators planning to finalize rules by 2028 for a market with an estimated $9.3 trillion in outstanding notional value.
The reforms are designed to make one of Africa’s most sophisticated financial markets more transparent and resilient while reducing the risks that can emerge when large derivative positions remain outside centralized clearing systems. The South African Reserve Bank said the final rules are expected to take effect by 2028, although implementation will depend on the licensing and operational launch of an appropriate central counterparty.
Why the Derivatives Market Matters
OTC derivatives are financial contracts negotiated privately between counterparties rather than traded through a centralized exchange.
They include instruments such as:
- Interest-rate swaps
- Foreign-exchange derivatives
- Forwards
- Repurchase agreements
- Other contracts used to manage financial risks
Banks, corporations, investment firms and other institutions use these products to hedge exposure to interest rates, currencies, commodities and other market variables.
The enormous $9.3 trillion figure therefore does not represent money that investors have simply placed at risk.
It largely represents the notional value of contracts.
That distinction is important because notional value can dramatically overstate the amount that would actually be lost if contracts were settled.
Nevertheless, the size of the market means that weaknesses in its infrastructure could create broader financial-stability problems.
Central Clearing Is the Core Reform
The biggest proposed change is the introduction of central clearing for certain OTC derivatives.
Instead of two counterparties remaining directly exposed to each other, a central counterparty can stand between them.
The structure is designed to reduce the risk that the failure of one major financial institution creates a chain reaction through the derivatives market.
Central counterparties typically require participants to post collateral and maintain financial resources against potential losses.
That creates a more standardized framework for managing counterparty risk.
South African regulators have been working toward this type of reform for years as part of a broader effort to strengthen the country’s financial-market infrastructure.
Why Regulators Are Acting Now
The reform process is not a reaction to one isolated event.
South Africa began reviewing vulnerabilities in its OTC derivatives market years ago, following concerns about transparency, counterparty exposure and the potential for failures to spread through financial institutions.
A previous banking study found that the country’s OTC derivatives market had an outstanding balance of around R44.7 trillion at the time.
The market has since expanded substantially, making regulatory infrastructure increasingly important.
Global regulators have also spent years strengthening derivatives markets following the 2008 financial crisis.
The objective is straightforward:
Make large financial exposures easier to identify, monitor and manage before they become systemic problems.
The New Rules Could Cover Several Products
South African regulators have indicated that the reforms could apply to products including interest-rate and foreign-exchange swaps, along with other derivatives.
The exact scope will depend on the final regulatory framework.
That matters because not every OTC derivative presents the same level of systemic risk.
A heavily traded interest-rate swap between major financial institutions may require a different treatment from a customized contract used by a corporate client to hedge a specific commercial exposure.
Regulators therefore have to balance risk reduction with market efficiency.
A Central Counterparty Must Be Ready First
One of the biggest practical obstacles is infrastructure.
The Reserve Bank has emphasized that market participants will only be able to comply with central-clearing requirements once an appropriate central counterparty has been licensed and operationalized.
That means the 2028 target isn’t simply about writing new rules.
South Africa also needs to ensure that the institutions responsible for clearing, settlement, collateral management and risk monitoring can actually handle the additional activity.
Without that infrastructure, mandatory clearing could create new operational problems instead of reducing existing ones.
Banks and Financial Firms Will Face Higher Requirements
The reforms are likely to increase compliance requirements for market participants.
Firms may need stronger:
Risk-management systems
Collateral processes
Trade reporting
Capital planning
Legal documentation
Technology infrastructure
These changes can increase costs, particularly for smaller financial institutions.
But regulators argue that those costs need to be weighed against the potential damage caused by poorly managed counterparty risk.
Transparency Is Another Major Objective
OTC markets have historically been less transparent than exchange-traded markets because contracts are negotiated privately.
That makes it harder for regulators and market participants to see the full scale of exposures.
South Africa is also advancing trade-reporting requirements. Financial firms providing OTC derivatives services are expected to report extensive transaction information to the country’s trade repository, with implementation potentially beginning as early as 2027.
That creates another layer of oversight.
Central clearing and transaction reporting together can give regulators a much clearer picture of where financial risks are accumulating.
South Africa Wants to Avoid Regulatory Arbitrage
Another concern is that stricter rules in one part of the financial system can encourage firms to move activity elsewhere.
If South African institutions face significantly different requirements from international competitors, some transactions could migrate to less-regulated jurisdictions.
That is why South Africa’s reforms are broadly aligned with international post-financial-crisis regulatory standards.
The goal is not simply to impose more rules.
It is to ensure that South Africa remains competitive while maintaining credible financial-market safeguards.
The Global Market Is Enormous
South Africa’s $9.3 trillion OTC derivatives market may sound extraordinary, but it represents only a small fraction of the global derivatives system.
The Bank for International Settlements estimated that global OTC derivatives outstanding reached $846 trillion in June 2025, up 16% from the previous year.
That scale illustrates why regulators remain focused on the market.
Derivatives are essential for modern finance, but their complexity means that problems can become difficult to detect until market conditions deteriorate.
The Trade-Off
There is a legitimate argument against making the regulatory system excessively burdensome.
Central clearing, collateral requirements and extensive reporting can increase costs and potentially reduce liquidity in certain markets.
If rules are poorly designed, smaller companies could find hedging more expensive or less accessible.
But the opposite risk is more serious.
A system that allows huge financial exposures to accumulate without sufficient transparency can leave regulators blind to where the next major vulnerability lies.
What to Watch
The important developments over the next two years will include:
Central counterparty licensing: The infrastructure must be operational before mandatory clearing can work.
Final clearing rules: Regulators still need to determine exactly which derivatives will be covered.
Trade reporting: Firms will face increasingly detailed reporting requirements.
Capital rules: Non-bank derivatives providers may face tighter financial requirements.
Market participation: The impact on banks, asset managers and corporate hedgers will show whether the reforms remain practical.
The Bigger Picture
South Africa’s planned OTC derivatives reforms represent a broader shift in financial regulation: large markets are increasingly expected to make their risks visible rather than leaving them buried inside private contracts.
The $9.3 trillion figure should not be mistaken for potential losses, but it demonstrates the scale of the financial relationships involved.
If implemented properly, central clearing and stronger reporting could reduce counterparty risk and give regulators a much clearer view of the financial system.
The challenge is making the market safer without making it unnecessarily expensive or less liquid.
By 2028, South Africa wants its derivatives market to be not only large, but also significantly easier to monitor when markets come under stress.
