CME Agrees to Clear Credit-Swap Futures Being Designed by TrueEX

CME Group Inc., owner of the world’s largest derivatives market, will provide clearing services for new credit-default swap futures being developed by trueEX Group LLC and Standard & Poor’s.

The contracts will be available for trading on CME’s Globex electronic system, the companies said today in a statement. The deal among the three companies is non-binding and subject to final approval, they said. S&P Dow Jones Indices began offering three credit-spread indices on April 10 that are tied to debt issuers listed in the S&P 500 Index of stocks.

The Dodd-Frank Act, passed in 2010 to overhaul financial-market regulation, is moving most credit swaps into clearinghouses. The contracts, historically traded privately between banks and investors, will also be available on electronic systems after the unregulated market contributed to and complicated efforts to resolve the credit crisis.

Futures on credit swaps would open the market to small hedge funds and other investors who couldn’t afford to participate in the over-the-counter market or didn’t want to take the risk of counterparty failures.

IntercontinentalExchange Inc., based in Atlanta and known as ICE, began offering futures in June linked to credit indexes owned by Markit Group Ltd. Swaps tied to those benchmarks are the most actively traded derivatives in credit markets.

Both CME, based in Chicago, and ICE also clear over-the-counter credit swaps. CME has struggled to compete in that market, with $345 billion in cleared contracts since 2009, according to its website. ICE has processed $42 trillion of the contracts with its clearinghouses, it said earlier this month.

Credit swaps, used to protect against losses on debt such as corporate bonds, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted securities.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE