CME Group, the world's largest and most diverse derivatives marketplace, today announced the initial group of dealer founding members supporting its credit default swap (CDS) initiative. The new members will be Barclays Capital, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley, and UBS, each of whom has executed a non-binding term sheet with respect to the CDS initiative.
The dealer founding members join the buy-side founding members, AllianceBernstein, BlackRock, BlueMountain Capital Management, Citadel, the D. E. Shaw Group and PIMCO, in supporting CME Group's OTC CDS initiative. As part of that support, the dealer founding members, in addition to the buy-side founding members and other buy-side firms, are planning to participate in a pre-launch program scheduled to begin clearing CDS by December 15, 2009, subject to necessary regulatory approvals. In addition, Bank of America Merrill Lynch, Nomura Group, and Royal Bank of Scotland will become CDS clearing member firms and intend to participate in the pre-launch program.
"Thanks to the collaboration and committed effort of so many key buy-side and dealer founding members, we expect to begin clearing CDS contracts by December 15th," said Terry Duffy, Executive Chairman, CME Group. "We believe that between our product coverage and our strategic alliance with buy-side and dealer firms, CME Group will provide the most comprehensive CDS clearing solution."
"Today's announcement represents a landmark industry milestone in bringing together a broad range of prestigious buy and sell side participants to support our clearing solution for credit default swaps," said Craig Donohue, Chief Executive Officer, CME Group. "CME Group believes that our solution, which was jointly developed with both our buy and sell side founding members over many months of effort, will be the strongest and most effective CDS clearing solution. Our solution will provide a number of benefits including immediate processing of CDS trades submitted for clearing, an extensive range of products to clear including single names and indices, a comprehensive and transparent risk management framework, the security of an industry leading financial safeguards package, and the leveraging of an established regulatory framework to protect customer collateral and positions."
CME's clearing solution is based upon cleared CDS products that will mirror OTC market conventions and practices, including the incorporation of ISDA Credit Derivatives definitions, adherence to decisions of the ISDA Determinations Committee and cash settlement to the ISDA auction settlement price, and incorporates the proven benefits of CME Group's clearing model.