CME delays CDS clearing launch as search continues for investors

CME delays CDS clearing launch as search continues for investors

The Chicago Mercantile Exchange has delayed the launch of its clearing counterparty for credit default swaps as it seeks to attract investment and liquidity promises from the dealer community.

The CME and hedge fund partner Citadel received regulatory approval to launch the clearing house last week. But a spokesman told Reuters that the go-live has been put on hold while the partners continue their search for big bank backing for the project.

"We hope to broaden the use of the platform but before we can do that we need to get the initial equity stakeholders online first," Allan Schoenberg told the newswire. "All of the key equity stakeholders are really the key liquidity providers, if you look at the buyside and sellside participants."

The CME and Citadel first reached out to the market back in October, offering a 30% stake in the venture and market-making privileges to potential stakeholders.

A rival clearing house from the InterContinentalExchange has already gone live with the support of ten major broker-dealers.

Industry observers say the CME desperately needs to win market support if it is to have any chance of success.

Describing ICE as being in "pole position" because of its wider industry support, Credit Suisse analyst Howard Chen comments: "The response (and) receptivity from the broader broker-dealer community is the greatest wildcard in determining the (success) of this initiative."

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