CME Group won the backing of five big money managers and a hedge fund in a bid to establish itself as a central clearinghouse for the $27 trillion credit default swaps business.
AllianceBernstein, BlackRock, BlueMountain Capital Management, D.E. Shaw Group and PIMCO are founding members in the venture, which also includes hedge fund Citadel Investment Group, CME said in a statement. An undisclosed number of large banks are also becoming founding members, the statement said.
CME, which first announced its credit default clearing venture in November, has been overshadowed by rival IntercontinentalExchange, whose ICE Trust has cleared more than $2 trillion of the contracts since it started in March. So far, all cleared swaps have been agreements between dealers. The race is now on to clear swaps between dealers and customers such as the hedge funds that CME has signed on for its venture.
Several bankers who have signed on or are conducting “due diligence” into CME’s venture declined to speak for the record, but said they believe about six banks will back the CME’s project. About a dozen main banks nationwide deal in credit default swaps and all have equity stakes in ICE Trust’s clearinghouse.
CME and Citadel had planned to offer trade execution as well as clearing for the credit default swaps, but that plan has been set aside, one source close to the matter said. Instead, founding firms in CME’s effort, including Citadel, will get certain incentives and benefits.
A pilot program for CME’s new venture is planned to start next month, two sources close to the project said. A CME spokesman declined to confirm the date, although today’s statement said a launch would be announced in coming weeks.
Ann Saphir is a senior reporter at Crain’s Chicago Business, a sister publication of Pensions & Investments