CME Group and Citadel have abandoned plans to launch a credit default swaps (CDS) trading platform and will instead focus on offering clearing services for the $27 trillion market.
Last year the market operator and hedge fund outlined plans to launch a joint venture firm, called CMDX, offering trading and clearing for the CDS market. However, Wall Street firms failed to show any interest in changing the way they trade credit derivatives, prompting a restructuring of the venture.
CME Group says with the focus now on clearing, a pilot programme will be launched in the weeks ahead. AllianceBernstein, BlackRock, BlueMountain Capital Management, the D E Shaw group and Pimco have all signed up as founding buy-side members and several sell-side participants are "in the process of becoming founding members".
Terry Duffy, executive chairman, CME Group, says: "Over the past several months, we have been working closely with all market participants. As a result of this collaborative process, we have refocused our offering to provide clearing-only services. Both buy-side and sell-side participants have expressed an interest in continuing to execute their CDS transactions the same as they do today, but with the added benefit of central counterparty clearing."
The venture will face stiff competition from the InterContinentalExchange, which began clearing CDS contracts in March. ICE acquired the Clearing Corporation, giving it the backing of major broker dealers and it has already cleared more than $2 trillion worth of contracts.