Eurex Clearing has presented a central clearing service for credit derivatives on invitation by the Federal Reserve Bank in New York. The proposal received support from European authorities who also participated in the meeting. The Deutsche Bundesbank also backs a European central clearing solution for OTC credit derivatives.
Eurex intends to build a consortium structure aiming to provide shared governance and control. The service consists of two stages: first, Eurex offers a ready-to-use service for iTraxx index contracts, as well as certain single name CDS products. CDX contracts will be added, subject to signing a license arrangement with Markit. In the first half of 2009, this offering will be complemented by an OTC clearing solution for ISDA documented credit derivatives. The Eurex Clearing solution will be directly linked into the existing data warehouse infrastructure.
“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,” says Thomas Book, member of the Eurex executive board and responsible for clearing. “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.”