Derivatives regulation: Central counterparty clearing goes mainstream
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Derivatives regulation: Central counterparty clearing goes mainstream

CME takes on upstart ICE; Clearing now open to banks and investors


estimated value of CDS market

The CME has signed up the main dealers in the credit derivatives market to its clearing service, adding some heat to the competition to tap into a market estimated to be worth $35 trillion. In doing so, CME is preempting legislation before politicians in Washington DC and Brussels that is expected to allow exchanges to break into a market that has been unregulated and effectively ring-fenced to competition by global investment banks. Central counterparty clearing was once the unglamorous part of the financial markets, often referred to as the plumbing that ran beneath the trading floor. A clearing house stands between two parties of a derivatives trade, guaranteeing the trade if one of the counterparties defaults.

That dull reputation got some polish on December 15 when Barclays Capital, Citigroup, Goldman Sachs, JPMorgan, Deutsche Bank, Morgan Stanley, UBS and Credit Suisse all agreed to begin CME’s service.

Member firms
In addition, Bank of America Merrill Lynch, Nomura and Royal Bank of Scotland became CDS clearing member firms. The dealers were joined by some of the largest institutional and hedge fund investors, including BlackRock, Pimco, Citadel and BlueMountain Capital Management, in processing their credit default swap trades through the clearing house.

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