"credit derivatives" are a HOT TOPIC, guys,,, this is taking advantage of the misery of others and their lousy credit situations... more news
CFTC Approves CME, CBOE Credit Derivatives Contracts
Last update: 6/5/2007 4:45:18 PM
(Updates with details of approval process for CBOE's credit derivatives contracts and includes a statement from the CFTC.)
By Howard Packowitz Of DOW JONES NEWSWIRES CHICAGO (Dow Jones)--Rulings issued Tuesday by a federal regulator pave the way for the Chicago Mercantile Exchange and the Chicago Board Options Exchange to enter the lucrative and rapidly expanding credit derivatives market. The Commodity Futures Trading Commission authorized the CME, a unit of Chicago Mercantile Exchange Holdings Inc. (CME), to list credit index event contracts. The CFTC also granted a request by the Options Clearing Corp. to clear similar credit event contracts proposed by the CBOE. The CBOE's planned credit default basket options still need approval from its regulator, the Securities and Exchange Commission. Exchanges such as the CME and the CBOE have been eager to obtain a piece of the rapidly growing credit derivatives market, valued at $34 trillion, according to figures released by the International Swaps and Derivatives Association, or ISDA. The vast majority of credit derivatives trades are performed over-the-counter, or away from an exchange, and without a central clearing house. The CFTC decisions follow formal protests lodged by the CBOE, which claimed CME's credit index product is not a futures contract, and should be subject to review by the SEC. In a news release issued Tuesday, the CFTC said, "approving the trading and clearing of these products provides the marketplace with valuable counterparty credit risk management products, while ensuring that appropriate public, market participant, and financial protections are in place." CME's credit index contracts comprise 32 North American companies, providing a method for acquiring protection against credit events including the risk of bankruptcy or failure to pay. The firms that make up the so-called CME North American Investment High Grade Volatility index were selected as a "general representation of the broad marketplace" in the industrial sector, the exchange said. The companies were also picked because of their liquidity in the credit default swap market and their conformance to over-the-counter derivatives practices, according to the CME. CME officials had earlier planned a June launch date for their new contracts, although an exact timetable has not been announced. The CFTC decision comes only about a week after another city rival and potential merger partner, CBOT Holdings Inc. (BOT), announced it intends to list its first credit derivatives contract later this month. The Chicago Board of Trade said last Wednesday it plans a June 25 start-up of credit default swap index futures on its e-CBOT electronic platform. The CBOT's index will be based on 50 North American investment grade entities, known as the Credit Derivative Research's Liquid 50 NAIG Index. Credit default swaps enable participants to transfer or obtain credit exposure, where one party could hedge against credit losses while the other assumes risk in exchange for payment. The Chicago exchanges face international competition for a share of the credit derivatives market. Deutsche Boerse AG (DB1.XE) has struggled in the early-going to build liquidity for its credit futures contract, which is based on three iTraxx credit default swaps indexes. Trading on the Deutsche Boerse product began March 27. -By Howard Packowitz; Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com (END) Dow Jones NewswiresJune 05, 2007 16:45 ET (20:45 GMT)
