On June 30, the Bank of New York Mellon (BONY) announced it made a strategic minority investment in International Derivatives Clearing Group (IDCG), a Nasdaq OMX subsidiary that serves as a designated clearing organization for clearing and settling interest rate swaps and other fixed income derivatives contracts.
“This is an opportunity for BONY to expand their offerings that will be extremely beneficial for IDCG customers,” says John Shay, chief marketing officer of IDCG.
“The interest rate swap market is tremendously bigger than the credit default swaps (CDS) market and there’s potentially a lot more money to be made there,” says Kevin McPartland, senior analyst at Tabb Group.
Shay approximates the interest rate swaps market to be $130 trillion, of which 70% are plain vanilla swaps appropriate for clearing.
In another clearing deal, NYSE Euronext and the Depository Trust & Clearing Corporation announced a joint venture for clearing U.S. fixed income derivatives on June 18. The two will create a new clearing house, New York Portfolio Clearing.
McPartland says that the joint venture shows that NYSE is focusing on interest rates rather than CDS clearing. “Both of these agreements are showing that the fight for CDS clearing has already started to weed out potential players.”