Liffe, the global derivatives business of NYSE Euronext, has signed a licence agreement with financial information services provider Markit to launch credit default swaps based on Markit i
Liffe, the global derivatives business of NYSE Euronext, has signed a licence agreement with financial information services provider Markit to launch credit default swaps based on Markit iTraxx Europe indices, a move that it says brings a cleared solution for CDSs a step closer.
The Markit iTraxx Europe indices are the most widely traded CDS indices for European credit protection. The agreement allows Liffe to offer a new iTraxx product that will clear on Bclear, its platform for processing OTC derivative contracts.
‘We are delighted to be leading our CDS initiative on Bclear with the Markit iTraxx indices, which are the industry standard,’ says Garry Jones, executive director of business development and strategy at Liffe. ‘This agreement further enhances and builds on our existing relationship with Markit.’
According to Liffe, Bclear will provide existing and new CDS market participants with a platform for reducing operational and counterparty risk whilst maintaining the flexibility of pre-negotiation that OTC market participants value.
CDS trades will be negotiated and agreed away from the exchange, before being processed through Bclear and cleared through LCH.Clearnet, which will stand as the central counterparty to all Bclear CDS transactions.
‘We are pleased to be working with Liffe and its Bclear platform,’ says Stephan Flagel, a managing director and head of indices at Markit. ‘The demand to develop new products referencing the Markit iTraxx indices underlines the central role that these indices play in providing transparency and liquidity to the global credit markets.’
The Markit iTraxx indices, comprised of the most liquid names in the European and Asian markets, allow investors to hedge positions or gain exposure to the credit markets. The indices are rules-based and the selection methodology designed to ensure that the indices are replicable and represent the most liquid part of the market. More than 35 banks are licensed as iTraxx market makers.
Bclear is the service for processing OTC derivatives trades through Liffe to clearing at LCH.Clearnet and was designed to help reduce the counterparty, credit, legal and operational risks associated with OTC deals. Since its launch in 2005, more than 300 million equity derivatives contracts have been processed through Bclear.
Bclear offers customers advantages including the absence of any requirement for the trade details to be published, or for customers to reveal their name to their counterparty, as there is with traditional OTC trades, nor any obligation to trade out with the same counterparty. All open positions are marked to market daily.
Liffe is the international derivatives business of Euronext, part of NYSE Euronext. Business in derivatives on equities and interest rates, indices and commodities worth more than USD2trn is traded through Liffe every day, making it the world’s second largest derivatives exchange by value of transacted business.
