The New York-based International Derivatives Clearing Group (IDCG) launched its interest rate swap clearing house on December 29 and has begun to process trades.IDCG's clearing service is called the International Derivatives Clearinghouse (IDCH), and is regulated by the US Commodity Futures Trading Commission. New York-based exchange group Nasdaq OMX acquired IDGC on December 22, 2008 and its matching and clearing technology is used to process contracts in the new venture.
Another of Nasdaq OMX's subsidiaries, the Philadelphia Board of Trade, is the designated contract market licensed to list the futures contracts cleared by IDCH. The clearing house has initially started to clear US dollar-denominated interest rate swap futures, and the company has plans to expand into servicing products denominated in other currencies, such as sterling, the euro, Canadian dollar, Mexican peso and yen.
Market participants can trade interest rate swap contracts bilaterally with dealers, and then replace such contracts with economically identical interest rate swap futures contracts via an exchange of futures for swaps process on IDCG's website swapdrop.com. These contracts are then cleared and settled through the clearing house.
"We see this as a terrifically timed opportunity given the derivatives industry's move towards central clearing to mitigate counterparty credit risk," said John Shay, chief marketing officer at IDCG in New York.
IDCH is signing up major dealers and buy-side firms onto its service.
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