Monday, December 14, 2009

ICE launches CDS clearing for buyside

Original posted on Reuters:

Exchange operator IntercontinentalExchange Inc (ICE.N) said on Monday it has begun clearing credit default swaps for buyside market participants, a day before a self-imposed deadline by large banks to expand access to the service.

Large dealers have told regulators they would offer central clearing to CDS clients by Dec. 15 as part of a range of commitments designed to reduce risks in the privately traded markets.

CME Group Inc (CME.O), the world's largest derivatives exchange and ICE's main competitor to clear CDS in the United States, has also said it plans to launch its CDS clearing service by that date.

ICE has "worked closely with multiple U.S. regulatory agencies to bring this facility for the reduction of systemic risk, increased transparency and safety to these vital markets," Dirk Pruis, president of ICE Trust, said on Monday in a news release.

Central clearing, in which a clearing house stands between the two parties to a trade and assumes the risk of a counterparty default, is seen by regulators as key to reducing risks of derivatives due to the maze of exposures the contracts create between large firms.

Credit default swaps are used to protect against a borrower defaulting on their debt or to speculate on their credit quality.

ICE, which has a revenue-sharing agreement with large banks, also said its European unit began clearing single-name credit default swaps after receiving British regulatory approval. It added BNP Paribas (BNPP.PA) and Nomura Holdings (8604.T) as clearinghouse members.

The company, which has cleared more than $4.3 trillion in notional value of CDS indexes in the United States and Europe so far this year, said the first tranche of CDS will reference companies in the European utility sector.

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