Eurex outlines CDS clearing proposal

Eurex outlines CDS clearing proposal

Derivatives exchange Eurex has unveiled its proposal for establishing a central clearing system for the over-the-counter (OTC) credit markets which it says has "received support from European authorities".

Eurex will look to for joint venture partners to work with it to establish the central clearing platform. The Swiss German exchange says it will build a "consortium structure" that would provide for "shared governance and control".

Eurex says its two-stage platform will initially support single name and index-based CDS products. ISDA documented OTC derivatives will be added to the system in the first half of 2009, during the second phase of deployment.

The clearing platform will be directly linked into the existing data warehouse infrastructure.

Eurex says its proposal had "support from European authorities".

In a statement, Thomas Book, member of the Eurex executive board and responsible for clearing, says: "Central clearing services are the most suitable option to effectively mitigate existing counterparty risk in OTC credit markets and improve market transparency - both elements are key to a sustainable reduction of systemic risk in credit markets on a global scale.

"Eurex Clearing's central counterparty clearing model has proven resilient and robust for listed futures and options products, especially during the recent turbulence in the financial markets."

The Eurex platform was one of four options presented at a meeting on Friday held by the Federal Reserve Bank of New York to discuss the establishment of a central clearing counterparty for CDSs.

Eurex had previously backed the Clearing Corporation's (CCorp) initiative to create a central clearing counterparty for the CDS market. CCorp began working with the Depository Trust and Clearing Corporation (DTCC) earlier this year to establish s central counterparty for CDS transactions registered within DTCC's Trade Information Warehouse.

CCorp said on Friday that it had recruited IntercontinentalExchange (ICE) to join its clearing initiative, which is also being backed by Markit and Risk Metrics.

In addition to the Eurex and CCorp platforms, federal regulators were presented with a joint proposal from CME and Citadel and an offering from Nyse Euronext.

In separate news the DTCC says the credit default swap contracts registered in its warehouse has fallen to $34.8 trillion - down significantly from the approximately $44 trillion registered at the end of April this year.

Less than one per cent of credit default swap contracts currently registered relate to particular residential mortgage-backed securities, says the DTCC.

Comments: (0)