10 October 2008

CCorp unveils ICE alliance as Fed mulls CDS clearing proposals

CCorp recruited ICE to join its initiative to create a central clearing counterparty for the credit default swaps market shortly before the Fed is to discuss the establishment of a central clearing counterparty for CDSs.

The Chicago-based Clearing Corporation CCorp has recruited IntercontinentalExchange (ICE) to join its initiative to create a central clearing counterparty for the credit default swaps (CDS) market.

 

CCorp released details of the move on the same day that the Federal Reserve Bank of New York is holding its second meeting is a week to discuss the establishment of a central clearing counterparty for CDSs. The first meeting on Wednesday ended without agreement.

 

The Fed says today's meeting will include representation from four potential CDS central counterparties - Eurex, Nyse Euronext, CME Group/Citadel and ICC/CCorp.

 

CME said earlier this week that it is teaming up with Citadel to provide an electronic CDS swaps platform that will be integrated with a central counterparty operating under its existing clearing house. The pair have invited major CDS market participants to join the initative as founding members by allocating up to 30% of the equity in the venture and by offering certain market maker privileges.

 

However the exchange-led CME initiative is up against the bank-owned CCorp, which began working with the Depository Trust and Clearing Corporation (DTCC) earlier this year to establish central counterparty for CDS transactions registered within DTCC's Trade Information Warehouse.

 

Last month CCorp moved to scotch rumours that its CDS clearing project was on the rocks and pledged to launch the new facility - which was expected to be operational in Q3 - by the end of the year.

 

In its statement, CCorp said it was working with regulatory authorities to establish a wholly-owned, limited purpose, New York trust bank that would serve as a central clearing house with respect to CDS transactions.

 

But CCorp has now teamed with ICE which already has a New York limited trust company - called ICE Trust - that will function as a global clearinghouse and central counterparty for CDS transactions. ICE Trust plans to become a member of the Federal Reserve System, says CCorp.

 

As well as recruiting ICE - and its Creditex and T-Zero subsidiaries - CCorp says Markit and Risk Metrics are backing its CDS clearing facility.

 

However it would appear that Eurex - which had originally backed the CCorp platform - is putting forward its own proposal for CDS clearing at today's meeting, as is Nyse Euronext.

 

Press release CCorp

 

© finextra