CME Group and its associated joint venture, CMDX, have received a special exemption from the U.S. Securities and Exchange Commission (SEC) for clearing and trading credit default swaps (CDS) through CME Clearing and the CMDX platform.
With this exemption, CME Group and CMDX have completed the regulatory reviews necessary to launch CDS clearing and trading in the U.S.
The SEC exemption allows CME Group to use its existing clearing membership structure to offer CDS clearing services backed by CME’s safeguards package of approximately $7 billion.
Clearing members that are registered FCMs or Broker-Dealers will be able to clear CDS trades on behalf of their qualified customers. CME Group will utilize its robust portfolio-based margin methodology for determining index and single name margin requirements.
With the SEC exemption, CME Clearing and CMDX can now offer market participants following benefits:
-A time-tested legal and regulatory framework that protects both customer positions and margin. In the event that a CME clearing member was to default on their proprietary positions, all customer positions and collateral will be fully protected.
-A state of the art clearing, settlement and risk management tool that provides significant improvements over the existing OTC CDS infrastructure.
-A mutualized guaranty fund of approximately $7 billion, which provides unmatched protection for market participants.
“We are confident our significant financial safeguards package and the proven counterparty risk management framework of CME Clearing, which has protected investors across a range of financial instruments more than 100 years, can bring stability to the CDS market,” says Terry Duffy, group executive chairman, CME.
“As the CDS market migrates to a central counterparty clearing model, participants will benefit from the financial strength and risk management capabilities of CME Clearing – the largest derivatives clearing organization in the world,” says Craig Donohue, chief executive officer, CME Group.
L.D.