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CME to launch CDS clearing house with support of eight major dealers

04 December 2009  |  8518 views  |  0 clock

After months of wrangling, The Chicago Mercantile Exchange has finally secured agreement with eight leading dealers to participate in its credit default swaps counterparty clearing initiative.

The agreements with Barclays Capital, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, and UBS, pave the way for the CME to take on rival InterContinentalExchange in the nascent CDS clearing market.

The dealer founding members join the buy-side founding members, AllianceBernstein, BlackRock, BlueMountain Capital Management, Citadel, the DE Shaw Group and Pimco.

In addition, Bank of America Merrill Lynch, Nomura Group, and Royal Bank of Scotland will become CDS clearing member firms and intend to participate in the pre-launch programme which kicks off on 15 December.

The arrival of larger dealers to the CME platform marks a victory for the Chicago-based exchange and its fund management clients which had complained of being frozen out of the market by the broker-backed ICE venture.

Since launch in March, ICE claims to have cleared some $4 trillion in notional CDS contract value at its US clearing house. However, the effort has faced mounting criticism from the buy-side community and regulators.

In June, Bluemountain capital COO turned up the pressure by accusing major derivatives dealers of "filibustering" to protect their oligopoly by deliberately withholding their support from the exchange-backed CME-led alternative. This in turn forced the dealers to promise regulators that they would offer buy-side market participants access to all viable clearing credit default swap solutions by 15 December.

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