UPDATE:CME Group To Begin Testing Credit-Derivatives Platform
CME Group Inc. (CME) said Thursday it will start testing next
week a long-delayed clearing platform for credit derivatives.
The exchange operator will begin test-clearing credit-default
swap trades with a pilot group of dealer banks and buy-side
participants as the exchange finalizes details of the service,
according to Ken Vroman, CME's chief of corporate development.
The announcement follows CME's decision to drop a
trade-execution platform for credit derivatives in an effort to
build support among dealers that control the majority of trade in
the $31 trillion over-the-counter market.
CME is competing with rivals IntercontinentalExchange Inc. (ICE)
and Deutsche Boerse AG's (DBOEF) derivatives unit Eurex to clear
Banks are seeking to route more swap trades through
clearinghouses as regulators weigh reforms for over-the-counter
markets, which shouldered some of the blame for last year's
Since launching its service in March, ICE has cleared more than
$2 trillion in CDS contracts. That puts the Atlanta-based company
far ahead of Frankfurt-based Eurex, which launched a European
platform in late July, and CME, which has yet to announce a launch
date as it works to secure support from dealer banks.
Speaking to analysts in Chicago on Thursday, Vroman said that
CME has been in talks with six to eight dealers "for quite a long
"We're confident we'll be coming to closure with them in the
near future," he said.
Demand from customers, as well as a Federal Reserve-backed push
for competition among clearinghouses, is seen driving dealers to
offer CME's service as an option for credit derivatives
In mid-September, CME announced that it had signed six buy-side
firms as founding members of its credit-derivatives clearing
service, including Citadel Investment Group, which had developed
the now-abandoned CDS trading solution in conjunction with CME.
Other buy-side members are AllianceBernstein Holding LP (AB),
BlackRock Inc. (BLK), BlueMountain Capital Management, D. E. Shaw
& Co. and Allianz SE's (AZ) Pimco.
According to Vroman, CME's clearing service will focus on speed
- clearing trades as they are executed rather than at the end of
the trading day or the day after.
The exchange operator is also considering post-trade processing
and portfolio-valuation services around over-the-counter
Beyond credit-default swaps, CME is working on clearing
functions for the much-larger interest-rate swap market, estimated
at around $403 trillion, and over-the-counter foreign-exchange
While CME has identified the clearing of OTC products as one of
its biggest opportunities, executives also sought to put the
nascent business in perspective Thursday.
Chief Executive Craig Donohue told analysts that the company was
"absolutely not" dependent upon the swaps business to achieve high
growth rates, emphasizing expectations for its core listed
derivatives business to recover as the global economic picture
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;