A re-energized player in CDS clearing

Clearing credit derivatives has been a huge issue as of late, and for a while there, it seemed as if the industry was on the verge of real competition in a new field: CDS clearing. A host of companies announced solutions, but over the last year or so, many of those solutions languished and faded. Only one developed any real volume, the one offered by the InterContinental Exchange, which had the backing of the big dealers and was the Wall Street favorite--which I have maintained is the key to success, even in the face of regulatory pressure to embrace central clearing or even exchange-based trading.

But the CME--which started with a splash but then faded--has come storming out of obscurity in this important market. It has announced that it will launch a clearing service by December 15. This bodes well for venture; the CME has signed up eight big dealers, including Barclays, Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM) and Morgan Stanley (MS). The real key may be the support from the buy-side. Founding members include BlackRock,  D.E. Shaw Group, Pacific Investment Management Co, and Citadel Investment Group.

Says one top analyst to Reuters: The move to bring in buy-side clients "was a Hail Mary pass to see if you could bring pressure on the brokers to break ranks and work with them. It appears to have worked." We'll see how fast volume develops. This is getting interesting all over again. 

For more:
- here's the Reuters article

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