CME Group CEO Sees Gradual Migration To Swaps Clearing
April 28 2009 - 6:30PM
Dow Jones News
The top executive of CME Group Inc. (CME) said Tuesday the
exchange is unfazed by indications that dealer banks are moving
credit derivatives business onto a rival clearing platform faster
than expected.
While IntercontinentalExchange Inc. (ICE) reported Monday that
it has cleared more than $150 billion in credit derivatives trades
since launching its service in early March, CME's own platform
remains in the wings, awaiting backers.
Nearly two months have passed since CME received final
regulatory clearance to roll out its credit default swaps solution,
a joint venture with Citadel Investment Group called CMDX, which
has been operationally ready for months but continues to await a
critical mass of clearing members and market participants.
However, credit derivatives' migration to clearinghouses is "not
going to happen quickly," said Craig Donohue, chief executive of
CME, in an interview with Dow Jones Newswires.
CME continues to court a handful of banks as it touts a fresh
approach to the dealer community, though many observers still see
ICE as the heavy favorite in CDS clearing after the Atlanta-based
exchange landed the support of major banks via its acquisition of
the bank-backed Clearing Corporation.
Last week ICE moved further ahead as it began clearing live
credit derivatives trades after weeks of back-loading existing
positions into its ICE Trust platform.
Nevertheless, Donohue said that CME is not worried, reiterating
that the company views credit derivatives clearing as a "marathon"
rather than a sprint.
He compared the credit derivatives market's adoption of central
counterparty clearing to traders' gradual embrace of electronic
futures trading, a process that began around the turn of the
century and continues to play out. Currently, more than 80% of
CME's overall volume is electronic.
While ICE deserved credit for its CDS success, Donohue said that
its volume to date represented only about three-tenths of 1% of
total outstanding trades in the $28 trillion market.
To make up ground, Donohue said CME's service will look to
leverage the brand name of its ClearPort over-the-counter clearing
platform, and bring more buy-side participants in credit
derivatives into the fold.
CME will create "founding member roles," he said, offering a
minimum 50% equity stake in CMDX to dealers and large buy-side
institutions like asset management firms and hedge funds.
Donohue also said that the focus on credit derivatives clearing,
which grabbed headlines last fall after regulators insisted on a
market-led solution before the end of 2008, was overdone in the
context of other, larger over-the-counter markets also migrating
toward the central counterparty model.
Donohue was speaking on the sidelines of an Executives' Club of
Chicago luncheon, where he was named International Executive of the
Year.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com