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Eurex backs efforts to improve market infrastructure for credit default swaps

Derivatives exchange and clearing house Eurex has come out in support of European Commissioner Charlie McCreevy's call for action to improve market infrastructure in trading and clearing of over-the-counter derivatives and notably credit default swaps.

'We agree with Commissioner McCreevy's view that standardised trading and central clearing services will strengthen market integrity and stability in the credit derivatives market,' says Eurex chief executive Andreas Preuss.

'Eurex has an immediately available ready-to-use solution for trading and clearing of CDSs. We are open to create a consortium with CDS users to share governance and control of the CDS services.'

Thomas Book, the Eurex executive board member responsible for clearing, adds: 'A central clearing service will improve risk management and capital efficiency and at the same time mitigate counterparty risk. As the largest European clearing house, Eurex Clearing will bring its proven expertise and state-of-the-art risk management to the CDS market.'

Earlier this month Eurex offered to create a consortium structure sharing governance and control with CDS users. In a first stage, Eurex is offering a ready-to-use solution for iTraxx index contracts, as well as certain single-name CDS products, and CDX contracts will be added subject to the signing a license arrangement with Markit.

In the first half of next year, this will be complemented by an OTC clearing solution for credit derivatives documented by the International Swaps and Derivatives Association. Eurex says it has already received support for its solution from European authorities including the European System of Central Banks and the Deutsche Bundesbank.

Eurex Clearing, a subsidiary of the exchange, provides clearing services for listed futures and options products as well as stocks and certain OTC markets, and Eurex says its central counterparty clearing model has proven an important stabilising factor recently in the financial markets.

In May this year, Eurex issued a white paper on global derivatives markets outlining the benefits of exchange-trading and central clearing infrastructure for the markets, including mitigation of existing counterparty risk in OTC credit markets and improved market transparency, which it says are key to a sustainable reduction of systemic risk in OTC derivatives markets on a global scale.

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