Eurex ventures into OTC derivatives clearing

Eurex ventures into OTC derivatives clearing

Swiss German derivatives exchange Eurex is in talks with infrastructure providers about introducing a clearing platform for the over-the-counter (OTC) credit markets.

The news comes just days after CME Group said it would expand clearing services to OTC interest-rate swaps and Markit and the Depository Trust and Clearing Corporation (DTCC) said they would form a joint venture for processing and confirming OTC derivatives.

Eurex says its new initiative - which is expected to launch in early 2009 - aims to "complement current US initiatives with a European solution".

The European OTC CCP platform will utilise existing Eurex Clearing functionality, as well as new tools for trade and risk management. The system will initially focus on iTraxx index exposures that are mainly traded out of Europe. Eurex says an extension to other asset classes - such as equity, fixed income - can be "handled flexibly" according to market demand.

The exchange says it is in discussions with several infrastructure providers concerning their involvement in a new platform. Names have not been disclosed but one of the providers is rumoured to be the DTCC.

Eurex says the new service is "designed to address recent developments in the OTC market which suggest that concerns about systemic risk due to the backlog of transaction confirmation and potential counterparty defaults require improvements in the market's infrastructure".

Thomas Book, responsible for clearing on the Eurex executive board, says customers would profit from straight-through processing, enhanced collateral management and multilateral netting for OTC trades which currently account for 84% of all derivatives traded.

Earlier this month Nyse Euronext subsidiary Liffe previewed plans to launch a new set of contracts based on the iTraxx European indexes with integrated OTC clearing through its Bclear operation.

Meanwhile in May the US Clearing Corporation (CCorp) said it had agreed a deal with the DTCC that will result in the launch of a central clearing facility for over-the-counter (OTC) credit derivatives in the third quarter.

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