Anglo-French central counterparty LCH.Clearnet will clear credit default swap (CDS) trades for US clearing members after a US regulatory decision to recognise European derivatives rules was struck.
CDS index trades will be processed through the firm’s CDSClear business and cleared through the LCH.Clearnet’s Paris-based CCP. It will give US members more choice of institutions through which to clear CDS indices and provide additional liquidity to CDSClear.
The company currently has a pending application to the Commodity Futures Trading Commission (CFTC) to become a registered derivatives clearing organisation (DCO), a decision on which is expected towards the end of the year.
“This development provides more choice and flexibility to members in clearing CDS index trades. We’re built upon our extensive OTC expertise and have adapted it to provide robust risk and default management for the credit markets,” said Charlie Longden, CEO of LCH.Clearnet’s CDSClear business.
Last week, the CFTC met with European regulators to outline substituted compliance guidelines, which will allow greater harmony between US and European rules governing OTC derivatives.
Under the accord, the CFTC agreed to work closely with European regulators to ensure their rules, inspired by G-20 aims to more closely police the OTC derivatives market, meet the same standards.