European exchanges launch CFD clearing

LCH.Clearnet Limited (LCH.Clearnet) and Chi-X Europe, the largest pan-European equities exchange, will this week launch the world’s first contract-for-difference (CFD) clearing service for institutional investors.

The centrally cleared CFD (ccCFD) service has been designed to fit with existing market practices. Institutional investors will be able to source best execution from the broker of their choice and transform this into an on exchange centrally cleared CFD. The service complements regulators’ stated aims to increase the proportion of OTC trades cleared and provides additional choice to institutional investors concerned about counterparty risk or regulatory developments.

The ccCFD contract has been developed by LCH.Clearnet and is accessed through Chi-X Europe’s ccCFD service. Benefits of this unique service include:

  • In line with regulators’ stated aims to increase clearing of OTC trades
  • Wholesale fungible and standardised LCH.Clearnet defined CFD contract
  • Cost efficiencies through automated post-trade execution
  • Cross margining with equities and netting efficiencies
  • Reduced counterparty risk through central risk management

The service initially covers UK blue chip equities, but will be extended to include continental European and further UK equities at a later stage.

Commenting on the announcement, Alasdair Haynes, CEO of Chi-X Europe said: “We have always sought to bring innovative and efficient products to the market and the launch of centrally cleared CFDs is a continuation of that trend. In the same way as Chi-X Europe launched its cash equities market ahead of MIFiD’s transformation of the trading landscape, we hope centrally cleared CFDs will help address the European Commission’s aim of bringing more OTC trades on-exchange ahead of any regulatory imperative. This is an exciting new opportunity for us to expand our business into new areas.”

Wayne Eagle, director of EquityClear at LCH.Clearnet said: “LCH.Clearnet has long sought to reduce risk in OTC markets by developing clearing solutions which complement existing market practices. This unique offering provides real choice to participants and addresses buy-side concerns around OTC counterparty risk. Clearing through the service, participants can benefit from our robust risk management processes and 11 years of experience of clearing OTC products.”

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