The IntercontinentalExchange (ICE) will offer exchange-traded futures and options contracts based on corporate credit default swaps (CDS) indices, helping trading houses avoid new regulation on over-the-counter derivatives trading.
The Atlanta-based exchange and clearer will licence CSD indices in North America and Europe from financial information provider Markit to create the contracts, which will be available in the first quarter of 2013.
The Markit CDX and Markit iTraxx indices will offer futures referencing CDS indices to let firms manage corporate credit risk and reduce risk exposure.
“The expansion of the CDS market to futures provides credit market participants with additional tools for managing credit risk exposure,” said David Goone, senior vice president and chief strategic officer at ICE.
The Commodity Futures Trading Commission (CFTC) is in the process of bringing in new regulation on OTC derivatives trading as part of sweeping regulatory change under the Dodd-Frank Act.
However, delays and exemptions were announced last week for reporting requirements relating for high-volume swaps traders, incorporating banks and large asset management firms. Many buy- and sell-side firms are seeking to stay below the threshold defined by the CFTC for becoming major swap participants or swap dealers by using exchange-traded products that replicate swaps exposures on ICE and the Chicago Mercantile Exchange (CME).
Meanwhile, the CME Group will offer portfolio margining of over-the-counter interest rate swap positions against Eurodollar and Treasury futures for customers accounts from 19 November to help firms further reduce risk.
House accounts with CME already have access to this function, used to reduce initial margining requirements through cross-margining between OTC rates swaps and rates futures, which lets clients benefit from central clearing.
“We worked with buy-side clients to develop innovative and efficient risk management solutions that work for them such as portfolio margining, deliverable swap futures and real-time clearing,” said Laurent Paulhac, senior managing director, CME Group, OTC products & services.