CME Group, the diverse derivatives marketplace, has announced that its credit default swap (CDS) joint effort with Chicago-based Citadel Investment Group will be restructured as a strategic program targeted at providing clearing-only services for the nearly $27 trillion credit default swap (CDS) market, effective immediately.
Reportedly, the features developed as part of the joint effort with Citadel, which was known as CMDX, will be carried forward in the clearing-only service, including trade booking and legacy trade migration facilities.
CME Group has said that Citadel remains a founding member of the newly restructured CDS initiative. The other buy-side founding members are: AllianceBernstein, BlackRock, BlueMountain Capital Management, the DE Shaw group and PIMCO. Additionally, CME Group plans to launch clearing initiative’s pilot program in the weeks ahead.
According to the CME Group, its clearing solution builds on the existing over-the-counter (OTC) market, with ISDA-based CDS contracts and incorporates the CME Group’s straight-through-processing clearing model to deliver: a time-tested regulatory segregation and portability framework that protects both customer positions and margin in the event that a clearing member defaults; clearing of CDS trades at the point of execution rather than through batch processing, which provides immediate cleared trade confirmation and settlement and without any credit exposure between bi-lateral parties to a trade they wish to clear; migration of legacy non-cleared positions to cleared trades, simplified through use of existing market infrastructure and the ability for investors to leverage their existing relationships and connectivity with CME clearing members.
Additionally, it has added that products supported at launch will include a range of Markit CDX indices and liquid single name CDS. CME Clearing also supports trade entry through its CME ClearPort platform, enabling connectivity from any trading platform.
Terry Duffy, executive chairman of CME Group, said: “We remain committed to bringing stability and transparency to the CDS market, while further enhancing confidence in the financial marketplace. Over the past several months, we have been working closely with all market participants. As a result of this collaborative process, we have refocused our offering to provide clearing-only services. Both buy-side and sell-side participants have expressed an interest in continuing to execute their CDS transactions the same as they do today, but with the added benefit of central counterparty clearing.”
Craig Donohue, CEO of CME Group, said: “Our solution offers point of execution clearing of CDS trades, the breadth of products to clear which includes single name CDS, a comprehensive and transparent risk management system, the security of our approximately $8 billion financial safeguards package, and an established regulatory framework to protect customer positions and offer margining efficiencies.”
