UPDATE:Bank of France,Regulator OK Credit Derivatives Clearing Plan

The Bank of France and the country's market regulator on Monday approved an LCH.Clearnet SA project for the clearing of European credit derivatives indexes, as the clearing entity reported handling its first transactions.

LCH.Clearnet's service will clear a range of European credit derivatives indexes issued in euros, the Bank of France and the Autorite des Marches Financiers said. The project may ultimately be extended to over-the-counter, single-name credit default swaps, they added.

Earlier in March, leaders from a group of euro-zone countries called for increased oversight of over-the-counter derivatives trading, a market worth an estimated $605 trillion world-wide.

The estimated $25 trillion credit default swap market represents a relatively small piece of the whole, but has been a focus for regulators and lawmakers that blame the products for deepening the 2008 financial crisis.

Eligible derivative products should be traded on exchanges or electronic trading platforms and cleared through central counterparties, ideally located within the euro zone, said French President Nicolas Sarkozy, German Chancellor Angela Merkel, Greek Prime Minister Georgios Papandreou and Eurogroup head Jean-Claude Juncker in a joint statement.

The AMF and the Bank of France said LCH.Clearnet SA benefits from settlement in central bank money as well as access to permanent facilities and to intraday credit of the Eurosystem, the group of euro-zone central banks.

"[These] constitute an essential feature of the management of its liquidity and of the resilience of the clearinghouse, and thus contribute to financial stability," the AMF and Bank of France said.

A spokeswoman for LCH.Clearnet confirmed Monday that the clearing entity had processed credit default swap transactions based on Markit's iTraxx Europe indexes, made up of the most liquid names in the European markets.

LCH.Clearnet, which also clears trades in futures, repo, bond and interest rate swap markets, became Monday the third clearing service for European CDS transactions amid a raft of exchange-backed ventures targeting the market.

IntercontinentalExchange Inc. (ICE), with support from major dealer banks, has taken the early lead in European credit derivatives clearing over a rival effort from Deutsche Boerse's (DB1.XE) futures unit Eurex.

CME Group Inc. (CME), which clears CDS trades in the U.S., is also preparing a London-based venture slated to go live later this year.

French banks Societe Generale (SCGLY, GLE.FR), BNP Paribas SA (BNP.FR), Credit Agricole SA (CRARY, ACA.FR) and Natixis SA (KN.FR) have signed up to LCH.Clearnet's CDS service, with international banks expected to join in a few months' time, according to LCH.Clearnet officials.

Web sites: www.amf-france.org; www.banque-france.fr

-By William Horobin, Dow Jones Newswires; +33 1 4017 1740; william.horobin@dowjones.com

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