Wednesday, April 14, 2010

LCH.Clearnet launches clearing services for CDSs

LCH.Clearnet SA (LCH.Clearnet) announced on March 30 that it successfully cleared the first credit default swap (CDS) index contracts on Monday 29 March.

Both regulators and market participants have been keen to see clearing for CDS introduced to bring security and transparency to the OTC derivatives markets. The service, launched in response to this demand, has seen tremendous support from clearing members. They have been key in developing the offering in collaboration with LCH.Clearnet to ensure that it is fully in line with market practices and meets the core requirements that have been determined by the industry and policy groups.

The introduction of clearing brings greater protection to the CDS market, enabling market participants to benefit from reduced counterparty risk, straight through processing, post-trade anonymity, and a proven track-record in risk and default management. Initially, the service covers European indices, with the intention to expand the offering based upon market demand.

Commenting on the initiative, Christophe Hémon, Chief Executive, LCH.Clearnet SA said, “This successful launch demonstrates our ability to deliver innovative OTC clearing solutions across LCH.Clearnet Group, the global leader in OTC clearing. The collaboration and the support of market participants have been critical in the development of this service and we look forward to working with them to enhance our clearing offering.”


radioriver said...

Are all CDS contracts at each bank now sent to a clearing house? Are select contracts sent to a clearing house and others remain between the 2 counterparties (bank and customer)?

Cormick Grimshaw said...

I think the vast majority (90%?)of new eligible "standardized" CDS contracts are being novated to central counterparties (i.e., ICE Trust). The rest remain bilateral. "Eligible" is kind of a loaded word in that it is determined by the central counterparty. At the moment, I think "eligible" means CDS contracts on standardized index contracts (iTraxx and CDX) and maybe most of the single-name contracts based on names in the indices. Hope that helps.