There was a flurry of progress in the central clearing of credit default swaps (CDS) at the end of last week, as two firms announced launch dates for their European CDS solutions and one company revealed plans to launch a buy-side-tailored CDS clearing service.
On Thursday, the US Securities and Exchange Commission (SEC) approved conditional exemptions to the Exchange Act of 1934 that allow ICE Clear Europe, the European clearing division of futures exchange group IntercontinentalExchange (ICE), and Eurex Clearing, part of Deutsche Börse-owned European derivatives exchange Eurex, to act as central counterparties (CCPs) for US clients. The exemptions give the SEC regulatory oversight of the CCPs.
The SEC approved similar exemptions for clearing houses LCH.Clearnet Ltd on 24 December 2008, ICE US Trust on 6 March 2009 and the Chicago Mercantile Exchange.
On Friday, following the SEC’s announcement and receipt of approval from the UK’s Financial Services Authority (FSA), Deutsche Börse announced that Eurex Credit Clear, its CCP for CDS, would start clearing on 30 July, just ahead of the 31 July
deadline for using an European Union-based CCP for clearing European CDS.
In February, nine leading broker-dealers – Barclays Capital, Citigroup Global Markets, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley and UBS – committed to use an EU-based clearer for CDS by the end of July.
Eurex Credit Clear will initially clear the European Markit iTraxx CDS benchmark indices and 17 single-name iTraxx index constituents from the utility sector. The clearer intends to add the remainder of the single names in the iTraxx indices later.
ICE Clear Europe said it expects to start clearing European CDS transactions by 31 July. Further information will be released following discussions with the FSA and market participants. ICE’s US clearer, ICE Trust US, started clearing North American CDS indices in March.
ICE also revealed it would be launching a buy-side solution for CDS clearing in October, subject to regulatory approval. The solution is designed to provide segregation of customer funds and positions, as well as position and margin portability, which the firm said will protect those positions in the event that a clearing member defaults on its obligations to ICE, in turn offering increased security for the buy-side.
ICE is not the first company to target the buy-side with a clearing solution. In May UK clearing house
LCH.Clearnet Ltd announced plans to launch an over-the-counter interest rate swap clearing service for the buy-side in the second half of the year.