CME begins clearing interest rate swaps

By Reuters
Posted Oct. 18, 2010 at 9:48 a.m.

CME Group Inc. said on Monday that it had begun clearing interest rate swaps, the largest of the over-the-counter derivatives markets that lawmakers are forcing through more transparent venues.

The giant futures exchange operator named as participants in the clearinghouse five buyside firms, including Fannie Mae, Freddie Mac and PIMCO, and 10 dealers, including Goldman Sachs Group Inc. and JPMorgan Chase and Co.

CME Clearing will provide an “open access” and “futures-style central counterparty clearing” service, Chicago-based CME Group said, adding that it aimed to eventually offer cross-margining of OTC products with benchmark futures.

A clearinghouse stands between buyer and seller in a market, guaranteeing they meet all obligations even in the case of a default. The 2008 collapse of Lehman Brothers spurred lawmakers globally to run most swaps through clearers, creating a lucrative new market for companies like CME.

The interest rate swap market is estimated at about $400 trillion. BlackRock Inc. and Citadel are the other two buyside participants in CME Group’s long-awaited launch.

CME shares were up 3.6 percent at $277.01 in morning trading.

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