UPDATE 1-INTERVIEW-S.Korea plans deriv clearing house in 2010

* Credit default swap, currency rate swap clearing may follow

* Considering reduction in stock transaction fees

SEOUL, Nov 4 - South Korea's stock market operator is planning to launch a clearing house for over-the-counter interest rate swap trading next year in a first step to reduce risks from derivative products, an executive said on Wednesday.

Lee Chang-ho, who leads the Korea Exchange's management strategy division, told Reuters in an interview that the government viewed central counter-party service for derivatives as a major task, as the host country of the G20 summit in 2010.

"Once winning government approval, we will start offering central counter-party service for interest rate swaps and then expand it into credit default swaps (CDS) and currency rate swaps (CRS) and commodity derivatives," said Lee, who is also acting CEO of the bourse operator.

"We are trying to take the lead and set a benchmark in introducing standardised clearing services for over-the-counter derivative products."

Governments worldwide have been pushing to move opaque, privately traded derivatives, including CDSs, to central clearing houses in order to remove systemic risks posed by the contracts.

Clearing houses, which stand between parties to the trade and assume the risk of the failure of one of the parties, mutualise risk, set margin requirements and make public the terms of trade.

An official at the exchange (KRX) said it hoped to take the clearing house role for OTC derivatives as it had offered the service for on-the-market derivatives, but said it would depend on a government decision expected soon.

The interest rate swap market has been growing rapidly in South Korea, valued at 2,260 trillion won ($1,898 billion) last year compared with the country's total OTC market volume of 12,512 trillion won, according to the exchange.

Lee said interest rate swaps have simple structures relative to other derivatives, with clearing and settlement expected to be easier than for CDS and CRS, for which the exchange will have to study related regulations prior to adopting similar services.

South Korea's OTC derivatives markets are still in the early stages of growth, while on-the-market options for the KOSPI 200 index <.KS200> were ranked the world's largest by transaction volume in 2008.

The former head of the National Statistical Office also said the exchange was planning to look at a possible cut in transaction fees charged to brokers so as to bring down investment costs.

The Korea Exchange has temporarily removed transaction fees since November until year's end to boost market transactions, which resulted in brokerage companies such as Daewoo Securities <006800.KS> cutting brokering fees for customers.

Lee expected the domestic IPO market to accelerate next year and said the exchange was working to streamline IPO processes, with Korea Life Insurance, the country's No. 2 life insurer, and Mirae Asset Life Insurance preparing for public offerings.