CME Clearing provides participants with an open-access clearing solution for over-the counter credit default swaps. CME Group's OTC CDS clearing solution builds on the existing over-the-counter (OTC) market, with ISDA-based CDS contracts that are economically equivalent to the current OTC contracts. It also incorporates the proven benefits of CME Group's straight-through-processing clearing model to deliver:

• A time-tested regulatory segregation and portability framework that protects both customer positions and margin in the event that a clearing member defaults
• Clearing of CDS trades at the point of execution, which provides immediate cleared trade confirmation and settlement and leaves no window of credit exposure between bi-lateral parties to a trade they wish to clear
• Backloading of legacy positions into cleared trades, simplified through use of existing market infrastructure
• The ability for market participants to leverage their existing relationships and connectivity with CME clearing members
• CME Group's more than 100 years of experience in clearing, settlement and risk management

Additional Information

• Overview of Cleared OTC CDS
  Cleared OTC Buyside for Web (PDF)
• Frequently Asked Questions About Cleared OTC CDS
  Cleared OTC CDS Buyside Solutions FAQ (PDF)
• A review of CME Cleared OTC CDS by Risk Management Consulting Services
  Review of CME Group Margin Model and Financial Safeguards for CDS Clearing (PDF)

The Cleared OTC CDS products comprise the highest volume Markit CDX and Markit iTraxx indices and their single-name constituents. They are designed to mirror bilateral OTC contracts, with standardized fixed coupons as defined by ISDA and adhere to ISDA DC resolutions. CME Cleared OTC CDS products will be settled as part of ISDA auctions. CME Clearing supports trade submission through CME ClearPort, enabling connectivity from any affirmation/confirmation or trading platform.

Get more information on CME ClearPort

Migration is the process of moving existing bilateral positions to contracts facing CME Clearing. For index contracts, each side of a bilateral contract is replaced with one standard contract facing CME Clearing. For single-name contracts, an existing bilateral position with a non-standard coupon is converted into contracts with standard coupons (e.g., North American single name contracts would be converted into two contracts, one at 100 bps and one at 500 bps). The two new contracts have the same net notional value and cash flows as the original non-standard bilateral position. Participants can easily migrate their existing book from non-standard OTC contracts to the standard centrally cleared contracts.

See how the migration process works

CME Clearing enforces a rigorous risk management regime, featuring a multi-factor algorithm specifically developed for CDS products, which efficiently and accurately captures the risk of CDS portfolios. The CME Clearing risk management regime also offers the flexibility to mark positions to market, to ensure that all positions are continuously and adequately collateralized. Because of this proactive and rigorous risk management process, CME Clearing has never suffered a clearing firm default in more than a century of operation.

Learn more about CME Clearing's role as a central counterparty
Learn more about the CME Clearing Financial Safeguards System

All CDS clearing members of CME Group are subject to the following requirements—please note: CME Clearing members that do not clear OTC products or CDS do not have to meet all of the following requirements:

• Minimum capital of at least $500 million
• A screening based on:
  
  • Financial health via submission of certified and/or regulatory financial filings
  • Disciplinary history including verification with other exchanges where the firm is a member
  • Credit review through a credit check
  • Business activities and operation capacity
  • Approval of application by the CME Clearing Risk Committee

Get more information on becoming a CME Clearing Member

To get started clearing OTC CDS at CME Group, establish a relationship with a participating CME CDS Clearing Member:

• Discuss and agree on trade capture options and trade flow
• Complete Required Clearing Member Customer Documentation. Clearing members and their customers who already have a futures agreement in place may complete an amendment to that agreement for over-the-counter derivatives. A template for this addendum, the “CME Cleared Over-the-Counter Derivatives Addendum,” has been developed by outside counsel representing the CME and a group of buy-side and sell-side participants in the CME Group Cleared OTC CDS solution. Clearing members and their customers may use this as a basis to negotiate the terms and conditions of their individual agreements. View CME Cleared OTC Derivatives Addendum template.
• Work with Clearing Member throughout testing cycles
• Begin clearing trades

For additional information on Cleared OTC CDS, contact:
Brian Oliver, Director, Business Development