Earlier this month, policy makers on both sides of the Atlantic threatened to mandate the central clearing of credit default swaps via a central counterparty and it seems those threats did the trick – a large portion of the leading CDS dealers in Europe have publicly agreed to use a CCP for some credit derivatives. Charlie McCreevy is undoubtedly very happy.
Some have questioned whether regulators in the U.S. would follow in pushing for either a public agreement to centrally clearing for CDSs, or mandate clearing as proposed in the Peterson draft bill. But remember, the major derivatives dealers included in the Operations Management Group in the U.S. have already stated their intention to use a central counterparty processing and clearing facility for credit default swaps in the goals in their letters submitted to the Federal Reserve last year. Don’t forget McCreevy refused to recognize these goals outlined by the OMG members including top players within the U.S. dealer community and industry associations.
The news of dealers agreeing to a CCP for CDS was swiftly followed by a public statement from ICE announcing its central clearing solution for CDSs in Europe. The move is not surprising at all because the exchange has been gaining ground in Europe already by establishing ICE Clear Europe, a London-based clearing house servicing ICE Futures Europe contracts and cleared OTC contracts transacted within Ice’s OTC markets, and has also hit the ground running with its U.S.-based clearing business for CDSs.
So, are the Euro specific exchanges worried?
Well before ICE’s announcement, LCH.Clearnet announced its plan to also launch a clearing service for CDSs in Europe via its Paris unit, LCH.Clearnet SA, which is regulated by the Banque de France and officially a Eurozone bank. Meanwhile, Liffe continue to push their own initiatives – Liffe announced the addition of new MSCI indices to its clearing service, Bclear earlier this week. Eurex – your turn?