Last week saw the launch of the first two contenders in the credit default swap (CDS) clearing counterparty (CCP) race: IntercontinentalExchange’s (ICE) ICE Clear Europe and Eurex’s Eurex Credit Clear. According ICE’s figures, its first week of operation has been a busy one, clearing €5.9 billion (US$8.4 billion) in CDS indexes since its launch on 27 July.
During its first week, ICE Clear Europe cleared 141 iTraxx index contracts transactions totalling €5.9 billion of notional value, and resulting in €382.5 million of open interest. Each of the initial clearing members, who include Bank of America, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley and UBS, participated during the first week.
Paul Swann, president of ICE Clear Europe, says: “The successful launch prior to the 31 July deadline coupled with the participation by each initial member demonstrates the industry’s commitment to improving the transparency, standardisation and counterparty risk profile in the CDS markets. We look forward to delivering our segregated funds offering to buy side participants in October.”
ICE Clear Europe, which also provides clearing services for ICE’s futures and OTC energy markets, has established a separate risk pool for clearing CDS, including a guarantee fund and margin accounts, as well as a dedicated risk management system and governance structure.
Through its US CDS clearing arm, ICE Trust, and now ICE Clear Europe’s European CDS clearing effort, ICE is attempting to bring a common infrastructure to global CDS market participants within their respective regulatory jurisdictions, while leveraging clearing systems and risk management processes already in use by the industry. ICE Trust has emerged as the front runner in the US leg of the CDS CCP race and has already cleared US$1.7 trillion in North American CDS indexes to date.
Eurex Credit Clear, on the other hand, has experienced a slightly slower start off the blocks but hasn’t been live for as long as ICE. The platform, which is currently being used by Nomura and UniCredit, has reportedly cleared €25 million (US$35 million) worth of contracts since its launch on 30 July.
The platform is also currently offering more than iTraxx indexes for clearance on its platform: participants are also able to clear the CDS contracts of 17 utility firms. Moreover, Eurex Credit Clear is already available to buy side firms, whereas ICE Clear Europe will not be able to extend its offering to these firms until October. The race is certainly not over yet and Eurex indicates that 18 more market participants are currently in active simulation to connect to the platform, which should boost its figures considerably.
The joint venture between Liffe and LCH.Clearnet, BClear, this week has also confirmed that it will be shutting down operations after failing to clear a single trade since its launch last year. The market is also awaiting more news of Paris-based Clearnet’s plans for the CDS market. Watch this space…