Federal Reserve Bank of New York and the Commodity Futures Trading Commission (CFTC) completed the regulatory review concerning clearing over-the-counter credit default swaps (CDS) through CMDX, comprehensive application produced by CME Group and Citadel Investment Group.
CME Group has had extensive discussions with the Securities and Exchange Commission (SEC) and are well along in the SEC review process. Additionally, CME Group and Citadel have finalized their definitive agreement for the joint venture company.
CMDX combines CME Group’s central counterparty clearing, settlement and risk management capabilities with Citadel’s state-of-the-art technology. CME Group will provide clearing services for CMDX’s migration utility, trade booking facility and trading platform. CME Group will also provide CDS clearing services to market participants submitting trades directly for clearing.
The CME Group Risk Committee also has approved the combined guarantee pool for the trading of CDS products. The approval allows CME Group to ensure maximum risk protection and capital efficiency for CME Group clearing member firms and customers. The committee is comprised of clearing member firm representatives and CME Group directors.
“This puts us a step closer to launching CMDX and bringing stability, transparency and the security of central counterparty clearing to the CDS marketplace,” says Terry Duffy, executive chairman, CME Group. “Our industry leading $7 billion guarantee fund combined with established account segregation offers best-in-class customer protection. Since we first started offering clearing services in 1919, no customer has ever lost money due to a default, and we will apply this experience and expertise to help the CDS market.”
“The services we offer will help reduce gross exposures, decrease bilateral credit risk, and provide increased efficiencies that will improve overall functioning of the credit markets,” says Craig Donohue, CEO, CME Group. From day one, OTC market participants can realize the benefits of clearing with no impact to existing trading strategies, allowing them to inject liquidity into the global capital markets.”
L.D.