The initial product launch will be for NDF-style transactions for US dollar (USD) versus Chilean peso (CLP), where original trades conducted in the standard USD/CLP interbank terms of Chilean peso per US dollar, can be submitted for clearing.
The clearing service is expected to benefit from daily valuation curves provided by ICAP, an interdealer broker and a provider of brokerage services to the Latin American FX markets.
CME Group said that the benefits of the offering include: mitigated counterparty risk; expanded liquidity and enhanced operational efficiency.
All OTC FX positions sent to CME Clearing will eventually allow for the same cross-margin efficiencies as exchange-traded FX futures and options.
In addition, the availability of daily valuation curves will help counterparties in daily marking and position margining, which may serve as valuable risk mitigation for portfolios of longer-dated risk products.
CME Group director of FX products Craig LeVeille said that Chile has a strong economy generating large investment exposures to foreign assets. Local institutions can use the clearing service to mitigate the growing credit constraints they face when hedging currency risks, and this should lead to a boost in liquidity and an expansion in cross border activity.
