Investor protection improved with centrally cleared CFD launched in partnership with Commerzbank, ING and Citi
Cantor Fitzgerald Europe (‘Cantor’) and LCH.Clearnet Limited (‘LCH.Clearnet’) announced today that they have launched Europe’s first centrally cleared OTC Contract for Difference (‘CFD’) in partnership with Commerzbank Corporates & Markets, ING and Citi. The initiative is in response to client demand for a reduction in risk to CFD providers, and is in line with regulators’ stated aim of increasing the proportion of cleared OTC contracts.
CFDs are cash–settled derivatives that track the difference in price of an underlying asset. They have become increasingly popular with investors over the last decade, providing a simple way to trade on a leveraged basis for both long and short positions.
Central clearing of CFDs by LCH.Clearnet provides counter-party risk mitigation to the customer of the CFD provider in the event of the provider’s default. The hedge entered into between Cantor Fitzgerald and its synthetic prime brokers, Commerzbank and ING, will also be centrally cleared.
Commerzbank C&M and ING offer synthetic prime brokerage services to institutional clients, including Cantor Fitzgerald, and Citi provides clearing services to ING.
Citi becomes the first general clearing member of LCH.Clearnet to provide third party clearing services for this market segment.
Alberto Pravettoni, CEO of LCH.Clearnet’s Repo and Exchanges business, said: “We are delighted to be the first CCP to offer central clearing of OTC CFDs and to have worked closely with market participants to develop a solution that is tailored to their needs. By working with CFD providers who meet our criteria for membership, we help investors access the best market price for a trade while benefiting from reduced counterparty risk, collateral efficiencies and cross-margining opportunities between cash equities and CFDs.”
Charles Knott, Director of Cantor Fitzgerald Europe, said: “Enhanced protection of client money is core to the continued success of our industry. As such, there’s a growing recognition that over-the-counter contracts should be cleared on transparent trading exchanges and involve a central counterparty.
“We believe that central clearing for the OTC CFD market will eventually be mandatory and clients will benefit from the reassurance that their funds are securely deposited in a segregated account with the central counterparty.
“The launch of our new centrally cleared CFDs is in line with the European commission’s stated aim to increase the proportion of cleared OTC contracts. As an innovative firm, it is natural for us to be at the forefront of developing this new product offering in partnership with such respected counterparties as LCH.Clearnet, Commerzbank and ING.”
