May 11, 2009 / 5:36 PM / 10 years ago

CME says CDS clearing still up for grabs

Craig Donohue, the chief executive of CME Group, speaks in Beverly Hills, California April 28, 2008. REUTERS/Phil McCarten

NEW YORK (Reuters) - Credit derivatives traders have not yet decided which clearinghouse they will use and will probably want more than one option, the chief executive of CME Group Inc (CME.O) said on Monday.

“My sense from talking directly with both the sellside and the buyside is that, in fact, nobody has made any ultimate decisions whatsoever,” Craig Donohue, CEO of the world’s top derivatives exchange operator, told the Reuters Exchanges and Trading Summit.

“I think most players are going to want to remain open to more than one solution because they don’t know yet how those solutions are going to work in terms of effectiveness, efficiency, profitability and functioning.”

CME, partnered with hedge fund giant Citadel Investments, is one of five clearinghouse operators vying to clear credit default swaps, or CDS, a $30 trillion global over-the-counter market that some have blamed for exacerbating last year’s credit crisis.

U.S. rival IntercontinentalExchange Inc (ICE.N) began clearing CDS in March. Regulators approved CME’s clearinghouse in March, but the Chicago-based company has not yet launched it, partly because it has not yet struck agreements with additional partners in the venture, which also includes trading CDS.

“Conversations are going very well” with possible equity stakeholders, Donohue said, adding that CME is aiming to sign on “more than a few, but not likely dozens” once its clearinghouse launches.

CDS are contracts that insure against debt default.

U.S. and European regulators said last year that they wanted a central counterparty, or clearinghouse, installed between CDS trades to protect participants in the interconnected market in case one large member defaults. Now-crippled insurer American International Group Inc (AIG.N) was a major CDS dealer.

Donohue said he expected regulatory pressure for separate U.S. and European central counterparties.

Reporting by Jonathan Spicer, editing by Leslie Gevirtz and Lisa Von Ahn

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