The race for market dominance in clearing credit default swaps in the European Union continues, with ICE Clear Europe well ahead of the other contenders. Three parties have the ability to clear CDS at present: ICE Clear, Eurex and Liffe. Liffe, however, has pulled out of offering the service.
Two other competitors are in the wings, with CME Group and LCH.Clearnet having committed to offering European CDS clearing before the end of 2009.
The competition for the business follows the European Union’s deadline of July 31 for the obligatory clearing of CDS. This has brought to an end a longstanding conflict between the EU and CDS markets.
ICE Clear, the US-owned exchange, said that during its third week of clearing between August 10 and 17, a total of 734 CDS contracts were processed by its European clearing house — with a notional value of Eu50.8bn ($72.1bn).
The performance beat the 699 CDS index contracts worth Eu31.9bn that were cleared the week before.
During its first week of operations, ICE Clear processed 141 transactions worth a notional Eu5.9bn.
Its chief European rival, Eurex Credit Clear, did not clear any trades in its third week.
It processed a single trade during its second week, worth Eu50m. The German exchange cleared just one trade for Eu25m in its first week at the end of July.
ICE Clear Europe’s counterpart in the US, ICE Trust US, has cleared $1.7tr of CDS contracts since its launch in March.
ICE’s early lead may be driven by the institutional backing of large CDS dealers for its clearing houses.
In Europe, initial CDS clearing members are: Bank of America-Merrill Lynch, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley and UBS. All of them participated in the second and third weeks of processing.
ICE Trust was launched at the end of last year with the backing of Bank of America Merrill Lynch, Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.
While ICE has enjoyed a strong start, rivals say the race for CDS market dominance is not over. Thomas Book, the Eurex board member responsible for clearing, said at the end of July that 18 market participants were readying themselves and were expected to begin using its system soon.
ICE Clear went live on July 27, just four days before the deadline of July 31 imposed by EU internal markets commissioner Charlie McCreevy for the implementation of central counterparty clearing in the EU’s CDS market.
Separately, ICE Clear said it had approved the application of RBS to become a member.