Originally appeared in MiFID Monitor
Following the announcements by players such as CME and ICE last week, Eurex Clearing has finally revealed more details about its planned central clearing solution for credit derivatives. According to Eurex, the Deutsche Bundesbank has indicated its support for a European central clearing solution for OTC credit derivatives that will enhance the soundness and stability of European financial markets.
Thomas Book, member of the Eurex Executive Board and responsible for clearing, claims: “Eurex Clearing’s central counterparty clearing model has proven resilient and robust for listed futures and options products, especially during the recent turbulence in the financial markets.
Eurex says it intends to build a consortium structure to provide shared governance and control of the platform. The solution consists of two stages and the first involves Eurex offering a ready to use solution for iTraxx index contracts, as well as certain single name CDS products.
CDX contracts will be added at a later point, subject to signing a license arrangement with Markit, says Eurex. In the first half of 2009, this offering will be complemented by an OTC clearing solution for International Swaps and Derivatives Association (ISDA) documented credit derivatives. The Eurex Clearing solution will also be directly linked into the existing data warehouse infrastructure.
Book says: “Eurex and Eurex Clearing firmly believe that central clearing services are the most suitable option to effectively mitigate existing counterparty risk in OTC credit markets and improve market transparency – both elements are key to a sustainable reduction of systemic risk in credit markets on a global scale.”