CME Group Inc. and Citadel Investment Group have signed five prominent money managers to their fledgling credit-swap default joint venture.
But the launch of the business targeting a $29-trillion market is being thwarted by an oligopoly of banks that want to keep business at a rival clearinghouse in which they have an economic interest, according to a letter from one of the founding hedge funds, New York-based BlueMountain Capital Management LLC.
CMEs joint venture, CMDX, has been in the works for more than a year, but its ambitions to be a clearing destination for the insurance-like derivatives known as credit-default swaps have so far gone unfulfilled. CMDXs main rival, IntercontinentalExchange Inc.s ICE Trust clearinghouse, opened for business in March and has so far guaranteed $710 billion in credit-default swaps. ICE Trust is backed by a dozen or so Wall Street firms, including Morgan Stanley and Goldman Sachs Group Inc.
The other funds that have signed on to Chicago-based CMDX include bond-fund manager Pacific Investment Management Co. and hedge funds BlackRock Inc., D. E. Shaw & Co. and AllianceBernstein Holding LP.
The letter, from BlueMountain Chief Operating Officer Samuel Cole, was written after an International Swaps and Derivatives Association conference call May 29 among banks and hedge funds to discuss regulation of derivatives trading.