Dominant feeling when heads of exchanges and clearing houses discussed the challenges facing them at a conference in London in June
Enthusiasm for a big expansion in derivatives clearing vied
with caution about how to implement it as the dominant feeling
when heads of exchanges and clearing houses discussed the
challenges facing them at a conference in London in June.
Roger Liddell, chief executive of LCH.Clearnet, said: "The
possibilities are almost endless. Anything that can be traded
for which there is a good sense of pricing and a reliable
source of liquidity can be cleared."
The industry leaders were speaking at the IDX conference
organised by the Futures and Options Association and the
Futures Industry Association.
There was unanimous approval for the benefits of central
counterparty clearing, which all felt had shown its worth in
handling the Lehman Brothers default smoothly.
Firms including CME Group, LCH.Clearnet, NYSE Liffe, Eurex
and Inter-continental Exchange reported the success and rapid
growth of their OTC clearing systems.
David Peniket, president of ICE Futures Europe, and Paul
Swann, head of ICE Clear Europe, emphasised how they had added
many complex OTC energy products to their clearing
Craig Donohue, chief executive of CME Group, made a similar
point about CME ClearPort, and said the system now had $5tr of
cleared positions outstanding in the energy market.
"It’s a $250m a year business for us and growing,"
Asked which OTC products the exchanges were working on
bringing into a cleared environment, the industry leaders named
a wide range. Donohue pointed out that the interest rate swap
market was more than 11 times the size of the credit default
swap market and that there was some $50tr of OTC FX
"We’re investing in each area," he said.
"This is the beginning of a secular shift in the market
which will take many many years – it’s
analogous to the shift we went through from floor trading to
screens. Each asset class and product or customer base will
have a different path," he said.
But despite the appetite to expand OTC clearing, there was a
strong sense of not wanting to be rushed, and a broad consensus
that regulators should not force market participants to adopt
And although each of the big exchange groups – CME
Group, ICE, Eurex and NYSE Liffe – believes it has
worked out a way to risk manage CDS positions in a central
counterparty, they hinted that knowledge in this area was in
Asked by FOW whether there was any reason why CDS could not
be cleared as easily as equity derivatives, Garry Jones, global
head of derivatives at NYSE Liffe, highlighted the lower
liquidity of CDS due to the narrower range of participants
involved, as well as the fact that CDS reference individual
bonds, of which there is a finite supply for delivery.
Donohue said the liquidity, price transparency and price
reporting of the two markets were "hugely different".
The discussions confirmed the overall direction in which
regulators’ anxieties have appeared to push the
derivative markets since 2008 – towards the creation
of new central clearing systems, with a much lesser emphasis on
new mechanisms of price disclosure.
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