CME Group has begun clearing credit default swaps (CDS) as it moves to take advantage of increasing regulatory scrutiny of the market and compete with the rival InterContinentalExchange.
CME's clearing offering provides participants with an open-access clearing solution for over-the counter credit default swaps, is based upon cleared CDS products that will mirror OTC market conventions and practices and incorporates the CME Group's clearing model.
On its first day of clearing, CME Group cleared both dealer to customer and interdealer CDS trades.
The exchange has signed up Barclays Capital, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley, and UBS as dealer founding members. The buy-side founding members are AllianceBernstein, BlackRock, BlueMountain Capital Management, Citadel, the D. E. Shaw Group and Pimco. In addition, Bank of America Merrill Lynch and Nomura Group are CDS clearing member firms
"BlackRock will clear CDS based on the segregation and portability of customer collateral and the operational benefits provided by CME," says Richard Prager, global head of fixed income trading, BlackRock. "We are pleased with the progress made with respect to ensuring transparency by leveraging the CME's proven risk management practices."
James Hill, MD and global credit derivatives officer, Morgan Stanley, adds: "The CDS market continues to make enormous progress with respect to the reduction of operational and systemic risk."