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A-Team Insight Blogs

As BClear Bows Out, Clearnet Steps into the Ring for CDS CCP Round One

European regulators have for months been championing the launch of a European-based clearing central counterparty (CCP) for the credit default swap (CDS) market and it seems their prayers may have been answered in the form of Paris-based Clearnet. The joint venture between Liffe and LCH.Clearnet has taken over the mantle of viable CCP contender, following the failed attempts by LCH.Clearnet to launch a London-based offering.

The European regulatory community, including France’s own Autorité des Marchés Financiers, is keen to see one or several European CCPs on offer rather than relying on those based in the US. It is concerned that reliance on a CCP out of its jurisdiction will throw up a number of issues regarding regulation, supervision and monetary policy. The regulators are therefore keen to have direct access to the CCPs and for the CCPs to be accountable to them regarding their operations, should problems arise.

To this end and following extensive negotiations, in February, the industry agreed to meet the European Commission’s deadline to establish a European CCP for the CDS market by the end of July. Thus far, Eurex Clearing and IntercontinentalExchange (ICE) have indicated that they are planning to launch their offerings by the deadline.

However, earlier this month, the London-based joint venture between Liffe and LCH-Clearnet, BClear, was put under review because it failed to attract any business. In lieu of this endeavour, LCH.Clearnet’s French arm, Clearnet, has indicated that it will be joining the CCP race. The clearer is largely focused on cash equities but has the capabilities to clear equity derivatives and CDSs. It has also indicated that it is in negotiations with large French banks keen to use its platform for CDS clearing.

The end of the month is quickly approaching and it will be much clearer once the dust has settled after these launches who will gain the title of CDS CCP frontrunner for Europe. Given that ICE’s ICE Trust has emerged the winner across the pond, perhaps this may give its European effort a boost of confidence? Or maybe the markets will opt for the more European flavoured options? Not long to wait now…

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