Liffe, the global derivatives business of NYSE Euronext (NYX) and LCH.Clearnet Ltd (LCH.Clearnet), the global central counterparty (CCP), jointly announce that they have today launched credit default swap (CDS) index contracts on Bclear.
With this launch, Liffe becomes the first exchange to offer clearing of CDS contracts. The launch also marks a significant expansion of Bclear from a successful equity derivatives service to a wider cross-asset class platform.
The contracts reference ISDA 2003 Credit Derivative definitions, and in the case of credit events settle using the Final Price of ISDA Credit Event Auctions. The CDS clearing offered via Bclear will initially cover the Markit iTraxx Europe, Market iTraxx Crossover and Markit iTraxx Hi-Vol indices.
Duncan Niederauer, Chief Executive Officer, NYSE Euronext said: “We are pleased to announce that Liffe is the first exchange to deliver a clearing service for CDS contracts. This important launch delivers one of the highest financial priorities for governments and regulators globally.”
CDS contracts on Bclear will combine the security of central counterparty clearing with the flexibility that OTC market participants demand. The contracts are negotiated and agreed away from the exchange before being processed through Bclear and cleared through LCH.Clearnet.
Garry Jones, Executive Director, Liffe said: “We have worked closely with market participants, ISDA and LCH.Clearnet to ensure our contract design meets the market’s requirements. We have actively participated and will continue to participate in regulatory and industry discussions on CDS clearing. We look forward to offering more CDS products as we move into 2009.”
Roger Liddell, Chief Executive Officer, LCH.Clearnet said: “We are leading the way in establishing a credible central counterparty service for CDS indices. This is an important step towards allaying growing regulatory and investor concerns over the integrity of the CDS market. We are pleased to extend LCH.Clearnet’s broad range of asset classes. ”
Bclear has processed over 175 million equity derivative contracts in 2008 representing a year on year increase of 66% and processed a record 9.1 million contracts on 18 December 2008. Bclear is the on-exchange administration and clearing service that provides a simple and cost-effective way to register and process wholesale derivatives trades through Liffe to clearing at LCH.Clearnet. This reduces the counter-party credit, legal and operational risks associated with OTC deals.
Bclear first went live in 2005 and is based on technology provided by Cinnober. Today's service extension should be seen in the light of the massive discussion within the industry about regulatory and government pressure to move CDS into more transparent trading and efficient clearing. The lack of transparency and clearing within CDS trading is considered a major factor behind the ongoing financial crunch.
"Bclear is a really well-reputed and innovative service within the industry and we're of course proud to be system developer behind Liffe's success story", says Jan Arpi, CEO of Cinnober. "This is a great reference for us and yet another proof of our technology's possibilities when it comes to the flexibility and scalability that new challenges and opportunities require."
This year has been full of successes for Cinnober, the system supplier behind ventures such as Alpha Trading System and Turquoise, which have attracted much attention lately. In addition to these major new initiatives, Cinnober has also created new business with Burgundy, the Nordic MTF, and HKMEx, the new commodity exchange in Hong Kong, as well as system upgrades and innovations for existing customers such as Liffe and the London Metal Exchange.