CME Plans OTC Clearing

Chicago Mercantile Exchange ( CME) said it plans a comprehensive clearing solution to over-the-counter market participants.

The company expects to launch CME Clearing360 next month. It will be an extension of existing CME Clearing services, and will offer customers the flexibility of OTC transactions with the risk management efficiencies of centralized clearing.

Initially, CME Clearing360 will permit bilateral OTC interest rate transactions, to be converted into futures contracts, beginning with "substitutions" using CME Eurodollar futures.

Substitutions, or "subs," allow customers to substitute CME futures contracts for an OTC transaction in standard contract terms, such as an interest rate swap or forward rate agreement, with flexible settlement dates.

The CME Clearing360 will provide OTC participants the central counterparty clearing, which offers greater capital and operational efficiencies, including risk offsets against related futures and options positions; a proven history of risk management for the credit, operational and legal risks that customers face in OTC trading; and, additionally, because CME Clearing is the counterparty to every trade, the risk of default is virtually eliminated.

"The efficiencies offered by CME Clearing are a natural fit for the OTC market, and another example of CME expanding its reach into new markets," the company said. "With this service, OTC market participants can take advantage of existing systems and infrastructure offered by CME Clearing and clearing member firms, along with the existing benefits offered by exchange- traded products."

This story was created through a joint venture between TheStreet.com and IRIS.

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