CME Group, the world’s largest and most diverse derivatives exchange, today announced that it has passed two key regulatory hurdles to commence clearing over-the-counter credit default swaps (CDS) through CMDX, a joint venture company with Citadel Investment Group. Regulatory reviews with the Federal Reserve Bank of New York and the Commodity Futures Trading Commission (CFTC) are complete. CME Group has had extensive discussions with the Securities and Exchange Commission (SEC) and are well along in the SEC review process. Additionally, CME Group and Citadel have finalized their definitive agreement for the joint venture company.
The CME Group Risk Committee also has approved the combined guarantee pool for the trading of CDS products. The approval allows CME Group to ensure maximum risk protection and capital efficiency for CME Group clearing member firms and customers. The committee is comprised of clearing member firm representatives and CME Group directors.
An open solution for CDS products, CMDX combines CME Group’s proven central counterparty clearing, settlement and risk management capabilities with Citadel’s state-of-the-art technology. CME Group will provide clearing services for CMDX’s migration utility, trade booking facility and trading platform. CME Group will also provide CDS clearing services to market participants submitting trades directly for clearing. CMDX plans to provide the most comprehensive product offering in the marketplace, launching with all major CDX and iTraxx indices as well as their single-name constituents, covering more than 90 percent of the CDS index and single-name market.
"We are pleased to have successfully completed the review process with the CFTC and the Federal Reserve Bank of New York," said CME Group executive chairman Terry Duffy. "This puts us a step closer to launching CMDX and bringing stability, transparency and the security of central counterparty clearing to the CDS marketplace. Our industry leading $7 billion guarantee fund combined with established account segregation offers best-in-class customer protection. Since we first started offering clearing services in 1919, no customer has ever lost money due to a default, and we will apply this experience and expertise to help the CDS market."
"CME Group was the first to announce a solution to bring the benefits of centralized counterparty clearing to the CDS market," said CME Group chief executive officer Craig Donohue. "The services we offer will help reduce gross exposures, decrease bilateral credit risk, and provide increased efficiencies that will improve overall functioning of the credit markets. For example, our solution allows existing bilateral trades to be submitted and migrated onto the platform for immediate clearing and netting of positions, reducing capital requirements and providing more flexibility for trading in and out of existing positions. From day one, OTC market participants can realize the benefits of clearing with no impact to existing trading strategies, allowing them to inject liquidity into the global capital markets."
CMDX is operationally ready and is actively meeting with potential clients from both the buy and sell sides to demonstrate its platform and complete customer onboarding. Pending completion of an SEC exemption process, CMDX will be ready to come to market.
More information can be found at http://www.cmdx.com.