CME Group, the world’s largest and most diverse derivatives marketplace, today announced that its credit default swap (CDS) joint effort with Citadel Investment Group will be restructured as a strategic program targeted at providing clearing-only services for the nearly $27 trillion credit default swap (CDS) market, effective immediately. Key features developed as part of the joint effort with Citadel, which was known as CMDX, will be carried forward in the clearing-only service, including state-of-the-art trade booking and legacy trade migration facilities.
Citadel remains a founding member of the newly restructured CDS initiative. The other buy-side founding members are: AllianceBernstein, BlackRock, BlueMountain Capital Management, the D. E. Shaw group and PIMCO. A number of leading sell-side participants are in the process of becoming founding members. CME Group plans to announce the launch of the clearing initiative’s pilot program in the weeks ahead.
"We remain committed to bringing stability and transparency to the CDS market, while further enhancing confidence in the financial marketplace," said Terry Duffy, executive chairman, CME Group. "Over the past several months, we have been working closely with all market participants. As a result of this collaborative process, we have refocused our offering to provide clearing-only services. Both buy-side and sell-side participants have expressed an interest in continuing to execute their CDS transactions the same as they do today, but with the added benefit of central counterparty clearing."
"With the increasing collaboration of key founding members from both the buy- and sell-side, we are confident our offering remains the strongest and most effective CDS clearing solution available," said Craig Donohue, chief executive officer, CME Group. "Our solution offers point of execution clearing of CDS trades, the greatest breadth of products to clear which includes single name CDS, a comprehensive and transparent risk management system, the security of our approximately $8 billion financial safeguards package, and an established regulatory framework to protect customer positions and offer margining efficiencies."
CME’s clearing solution builds on the existing over-the-counter (OTC) market, with ISDA-based CDS contracts that are economically equivalent to the current OTC contracts, and incorporates the proven benefits of CME Group’s straight-through-processing clearing model to deliver:
A time-tested regulatory segregation and portability framework that protects both customer positions and margin in the event that a clearing member defaults;
Clearing of CDS trades at the point of execution rather than through batch processing, which provides immediate cleared trade confirmation and settlement and leaves no window of credit exposure between bi-lateral parties to a trade they wish to clear;
Migration of legacy non-cleared positions to cleared trades, simplified through use of existing market infrastructure;
The ability for investors to leverage their existing relationships and connectivity with CME clearing members; and
CME Group’s more than 100 years of experience in clearing, settlement and risk management.
Products supported at launch will include a range of Markit CDX indices and liquid single name CDS. CME Clearing also supports trade entry through its CME ClearPort platform, enabling connectivity from any trading platform.