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CME Group Receives Regulatory Exemption from SEC to Launch CDS CCP in US

Following the approval and launch of IntercontinentalExchange’s (ICE) ICE Trust last week, CME Group has now announced that it has also been granted permission to operate as a clearing house and central counterparty (CCP) for credit default swap (CDS) transactions in the US. The derivatives exchange operator has received a special exemption from the Securities and Exchange Commission (SEC) to launch its CCP offering via CME Clearing and the CMDX platform.

The SEC exemption allows CME Group to use its existing clearing membership structure to offer CDS clearing services backed by the exchange operator’s financial safeguards package of approximately US$7 billion. Registered futures commission merchants and broker-dealers will be able to clear CDS trades on behalf of their customers, says CME.

CME reckons its size and history within the derivatives market mean it will hold sway over the rest of the CDS CCP contenders. “CMDX and CME will offer the most complete CDS solution for all market participants, providing segregation of customer funds and positions, and the broadest product offering, including all major CDS indices and single names,” claims group CEO Craig Donohue.

The exchange operator indicates that it believes its risk management framework to be considerably more robust than that of its competitors. In the event that a CME clearing member was to default on their proprietary positions, all customer positions and collateral will be fully protected, it claims.

Last week, ICE Trust launched and its founding clearing member participants have begun the transfer of bilateral CDS trades to the clearing house for processing and clearing, according to the firm.

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