CME to launch first exchange-traded credit derivatives

The Chicago Mercantile Exchange (CME) is to begin trading credit index event contracts, the first exchange-traded credit derivatives contracts, by June this year.

The contracts, to be traded on the CME Globex electronic trading platform, will allow traders to bet on the creditworthiness of a number of defined corporate credit events. The CME North American investment grade high-volatility index references 32 names, all rated BBB- or above, including Time Warner, The Gap and Viacom. The corporate names were selected according to their high volatility in credit default swap markets. A credit event is deemed to occur after a bankruptcy or failure to pay of the reference entity.

The contracts are awaiting regulatory approval, and further indexes may be introduced in due course to cover other market segments, such as high-yield and investment grade.

This move follows the Securities and Exchange Commission’s approval of CME’s credit event futures contract. The exchange hopes to start trading contracts on the creditworthiness of three corporate entities - Tribune, Jones Apparel Group and Centex - by June this year.