CME Offloads Uncleared Swaps - The Industry Spread

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

CME Offloads Uncleared Swaps

March 12, 2018

CME GroupThe CME is offloading all its uncleared credit default swaps (CDS) onto another clearinghouse.

The Commodities Futures Trading Commission (CFTC) announced that CME will move all its uncleared CDSto ICE Clear Credit LLC.

“At the request of Chicago Mercantile Exchange Inc. (CME) and ICE Clear Credit LLC (ICC), the Commodity Futures Trading Commission (CFTC) issued an order today approving the transfer of all open interest in credit default swaps (CDS) at CME to ICC.

“On December 15, 2017, CME and ICC each submitted letters requesting that that CFTC permit the transfer of CDS open interest.” The CFTC stated. “CME and ICC plan to conduct the transfer on March 16, 2018 by closing out positions at CME and establishing corresponding positions at ICC.”

What is a CDS?

A CDS is “a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well as all interest payments that would have been paid between that time and the security’s maturity date.” According to the website, Investopedia.

CDS and the 2008 Financial Crisis

Anyone who saw the movie Wall Street: Money Never Sleeps knows that CDS had a lot to do with creating the 2008 because CDS went from hedging vehicles to speculative vehicles in a global market that was totally unregulated and thereby totally out of control.

When large baskets of loans became “toxic” many speculators lost big.

ICE ClearWhat is ICE Clear LLC?

ICE Clear Credit LLC (Limited Liability Corporation) is a clearinghouse which was launched in March 2009 and was previously known as ICE Trust US LLC; the name was changed to ICE Clear Credit LLC on June 16, 2011

According to its website ICE Clear Credit LLC.: “clears index and single-name CDS instruments across North America, European and emerging markets and offer portfolio margining opportunities to help increase capital efficiencies.”

ICE Clear Credit LLC is part of ICE’s global strategy to maximize over the counter swaps clearing, with the company noting: “ICE’s OTC markets have played an important role in increasing transparency, liquidity and access to previously opaque and illiquid markets. ICE leveraged its OTC market history with its credit expertise to become a leader in trade processing and risk management for the global credit default swaps (CDS) market. In March 2009, ICE launched the world’s first dedicated CDS clearing house, ICE Clear Credit. In July 2009, ICE Clear Europeintroduced clearing for European CDS.”

What is clearing?

“People bring contracts to the clearinghouse and the clearinghouse steps between the buyer and the seller,” explained attorney Jerrold Salzmanbefore a House Agriculture Committee hearing in June 2017. “It collects from those who lose and pays to those who win. It manages a matchbook is what we call it.”

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