CME Group, Citadel to launch integrated credit default swaps trading platform

By Angela McDaniels

Tacoma, Wash., Oct. 7 - CME Group and Citadel Investment Group, LLC said they plan to launch a joint venture company that will be the first electronic trading platform to be fully integrated with a central counterparty clearing facility for credit default swaps.

CME Clearing will be the central counterparty for the platform.

The platform is expected to launch within 30 days and is subject to completion of definitive agreements and regulatory approvals, according to a news release from CME and Citadel. It will operate as an independent organization with its own board of directors and management team.

CME Group and Citadel said they have invited major CDS market participants to join as founding members by allocating up to 30% of the equity in the venture and by offering some market-maker privileges.

The companies said that as a fully integrated trading and clearing solution, the joint venture will provide:

• Enhanced liquidity through standardized contracts with fixed coupons for CDS indexes and their underlying single-name components, with over-the-counter market conventions, including credit event procedures;

• CME Group's established clearing, settlement and risk management capabilities and Citadel's technology for price discovery, matching engine and risk management analytics; and

• Facilities to convert existing bilateral trades to standardized contracts and straight-through processing into CME Clearing.

In addition, the joint venture has entered into preliminary licensing discussions with Markit, owner of widely traded CDS indexes and Markit RED.

"Recent market events highlight the urgent need to reduce counterparty credit risks in the CDS market as well as the other OTC markets," Craig Donohue, chief executive officer of CME Group, said in the release.

"This platform provides an important opportunity for market participants to demonstrate to customers and regulators alike how these markets can be better organized to meet legitimate hedging and trading needs while reducing operational and credit risks that have grown unchecked in the OTC market."

Platform participation is open to all qualified commercial market participants, the release noted.

CME Group is a derivatives exchange, and Citadel is a financial institution focused on alternative investment strategies and services. Both are based in Chicago.

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