CME To Focus CDS Venture On Clearing Only, To Add Partners

   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; [e-mail]

(Jacob Bunge and Kerry Grace Benn contributed to this article.)