CME awaits SEC approval for CDS clearing

The launch date for the Chicago Mercantile Exchange (CME) Group's credit default swap (CDS) clearing platform remains unclear, almost two weeks after it received the green light from two US financial regulators.

On December 23 the Commodity Futures Trading Commission (CFTC) announced the CME's certified plans to provide clearing services for CDS contracts complied with the core principles governing derivatives clearing organisations and CFTC rules, and therefore the regulator "would not object to the certification".

The CME similarly confirmed that, on December 23, it had successfully completed the review process with the CFTC and the Federal Reserve Bank of New York. "Extensive discussions" with the Securities and Exchange Commission (SEC) were continuing, but discussions were "well along in the SEC review process", the CME said.

Under current regulation, when traded bilaterally CDSs are excluded from commodities and securities legislation under several swaps exemptions. When the products are centrally cleared, however, the SEC's present position is that CDS contracts become subject to securities law. The CME is negotiating to be exempted from supervision under the Securities Act, but as of January 5 little headway had apparently been made.

"We do have the necessary clearance from the Fed and CFTC, but at this point we don't have an update regarding the SEC exemption and are still waiting to hear from them. We don't have a launch date for clearing currently but our focus now is customer readiness and we're in talks with many from both the buy and sell side," explained Anita Liskey, managing director of corporate marketing and communications at the CME Group.

While the CME has received approval from the CFTC, no detail has yet emerged on when the New York Fed will give the green light to the clearing platform under development by the consortium of the Atlanta-based Intercontinental Exchange and the Delaware-headquartered Clearing Corporation. The only central counterparty platform to go live so far has been London-based Liffe's clearing system, which went live on December 22.

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