DOW JONES NEWSWIRES
CME Group Inc. (CME) restructured its CMDX venture with Citadel
Investment Group LLC after finding participants in the nearly $27
trillion credit-default-swap market wanted the benefit of clearing
services without changing how they trade otherwise.
The world's biggest futures exchange received approval earlier
this year to offer a product that rivals IntercontinentalExchange
Inc.'s (ICE) clearing platform. However, many observers saw ICE as
the heavy favorite after the Atlanta-based exchange landed the
support of major banks via its acquisition of the bank-backed
Clearing Corp. ICE has cleared more than $2 trillion of the CDSs
since it began in March.
CME and alternative investment and technology company Citadel
Investment Group LLC decided to form the venture nearly a year ago
with the intent of providing both trading and clearing services. At
the time, CME Executive Chairman Terry Duffy hoped to capitalize on
the market's desire for "transparent, secure and liquid market
alternatives" for credit-default swaps, which protect holders
against bond and loan defaults.
"Over the past several months, we have been working closely with
all market participants," Duffy said Friday, adding that both
buy-side and sell-side participants wanted to continue executing
their CDS transactions the same way as they currently do but with
central counterparty clearing.
The venture's clearing system builds on the existing
over-the-counter market.
Citadel remains a founding member of the initiative. The other
buy-side founding members are AllianceBernstein Holding LP (AB),
BlackRock Inc. (BLK), BlueMountain Capital Management, D. E. Shaw
& Co. and Allianz SE's (AZ) Pimco, while several sell-side
participants are in the process of becoming founding members.
CME plans to announce the launch of the clearing initiative's
pilot program in the weeks ahead. But CME has been used similar
words several times since getting its exchange approval early this
year.
-By Jay Miller, Dow Jones Newswires; 212-416-2355;
jay.miller@dowjones.com
(Jacob Bunge and Kerry Grace Benn contributed to this
article.)