ISDA Unveils Members, Mission Of Industry Clearing Committee

The International Swaps and Derivatives Association disclosed the members and goals of its Industry Clearing Committee Wednesday as market participants band together to iron out kinks in the way some contracts are processed and to increase the volume of trades cleared overall.

Dow Jones Newswires reported Friday that the identity of 12 members of the committee's organizational group would be released this week, and identified 11 of those firms as well as plans to create a charter.

Clearing is when a third party steps in between trading partners and guarantees, for certain fees, their obligations, with the aim of reducing risk in the financial system. Regulators made clearing a top priority after the financial crisis as they sought to overhaul the market for privately traded or "over-the-counter" derivatives--a $708 trillion global market.

In September 2009, leaders of the 20 largest industrialized economies agreed to see all standardized OTC derivatives, or "swaps," cleared through central counterparties by the end of this year.

Dealers have cleared standardized swaps transacted with other dealers for some time, but the volume of swaps cleared between dealers and their customers lagged until recently. More than 50% of interest-rate swaps are already cleared.

The Industry Clearing Committee, established in June 2011, consists of "a broad cross-section of over-the-counter derivatives industry market participants," ISDA said. The 12-member organizational group is part of a broader "plenary" group that consists of about 40 member firms, all of which are working to broaden the volume of swaps cleared.

The organizational group, which coordinates the activities of the committee and handles its administrative work, is comprised of four sell-side banks and four buy-side financial players, plus four central counterparties, or CCPs, which operate clearinghouses for swaps.

Deutsche Bank AG (DB, DBK.XE), Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and J.P. Morgan Chase & Co. (JPM) are the four sell-side banks on the committee, as Dow Jones reported Friday, and the four buy-siders are BlackRock Inc. (BLK), D.E. Shaw & Co., King Street Capital Management LP and the Pacific Investment Management Co. unit of Allianz SE (AZSEY, ALV.XE) that is better known as Pimco.

Three of the CCPs are run by Atlanta exchange operator IntercontinentalExchange Inc. (ICE), London's LCH.Clearnet Group Ltd. and Chicago's CME Group Inc. (CME); the fourth is yet to be selected.

The plenary group is a decision-making body. Its members have been signatories to commitment letters sent to the Federal Reserve Bank of New York, setting out the industry's agenda on a variety of topics, including improving buy-side access to clearing.

Overall, the Industry Clearing Committee comprises 16 dealer banks, 13 buy-side firms, plus the three current CCPs that will eventually number four, as well as other trade associations.

The committee's charter is to explore the capital implications of clearing and to challenge obstacles to clearing, among other things.

-By Katy Burne, Dow Jones Newswires; 212-416-3084; katy.burne@dowjones.com

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