Derivatives exchanges firm on bank inclusion in clearing

CME Group and Deutsche Boerse bosses remain firm on importance of banks in central clearing.

The leaders of the world’s largest derivatives exchange groups remain firm on the importance of banks in central clearing, despite new models that involve greater buy-side participation.

Speaking at FIA Expo 2016 in Chicago, the heads of CME Group and Deutsche Boerse, reaffirmed their commitment to the banking community, following the launch of their new direct access clearing models.

“The steps exchanges have taken over the last 28 years [to disintermediate FCMs] has been zero. The FCM community is among the most important component of the financial system, and without their contribution exchanges and clearing houses do not work as efficient,” said Phupinder Gill, CEO of CME Group.

“We have neither the want, nor the desire to disintermediate FCMS.”

CME Group has recently released its Direct Funding Participant (DFP) model, providing buy-side participants a new clearing status to clear all of its CME proprietary trades with its clearing house.

Gill explained the rationale behind the new clearing model was client-driven, with many traders becoming concerned that their positions may not be as good as they once were.

“We have been working with FCMs to create the DFP model and does not impact their existing models,” Gill added.

Deutsche Boerse went live with its ISA Direct clearing model earlier this year, with the aim to capture pension fund and insurance companies with a direct clearing model.

“We are working with the FCMs and we do not want to disintermidate them, however there is something bigger going on,” said Jeffery Tessler, executive board member, Deutsche Boerse.

“The banks have some really serious issues which are manifesting themselves in the need to reduce capital consumption, the impact of capital ratios and the changes in the business models. So the bigger discussion is not about disintermediating the banks, but the banks themselves... It goes beyond the capital consumption and looking at market infrastructure, and to help them on the efficiency side.”