Liffe has become the first derivatives exchange to offer clearing of credit default swaps (CDSs) following an agreement with LCH.Clearnet, the global central counterparty (CCP).
From today, Liffe, the derivatives business of exchange group NYSE Euronext, will enable a number of popular CDS index contracts to be processed by via Bclear, Liffe’s on-exchange administration and clearing service for equity derivatives, before being cleared through LCH.Clearnet. CDS contracts will be negotiated and agreed away from the exchange.
The CDS clearing offered via Bclear will initially cover the Markit iTraxx Europe, Market iTraxx Crossover and Markit iTraxx Hi-Vol indices. The contracts will reference ISDA (International Swaps and Derivatives Association) 2003 Credit Derivative definitions and, in the case of credit events, will settle using the Final Price of ISDA Credit Event Auctions.
Duncan Niederauer, CEO, NYSE Euronext said: “This important launch delivers one of the highest financial priorities for governments and regulators globally.”
Liffe is the world’s second largest derivatives exchange, by value of transacted business, with business in derivatives on equities and interest rates, indices and commodities worth more than €2,300 billion in total per day.
“We have worked closely with market participants, ISDA and LCH.Clearnet to ensure our contract design meets the market’s requirements. We have actively participated and will continue to participate in regulatory and industry discussions on CDS clearing. We look forward to offering more CDS products as we move into 2009,” added Garry Jones, executive director, Liffe.
Bclear has processed over 175 million equity derivative contracts in 2008 representing a year on year increase of 66% and processed a record 9.1 million contracts on 18 December 2008.