NYSE Liffe shuts down CDS clearing service

Derivatives exchange NYSE Liffe and London-based clearing house LCH.Clearnet have shelved their central clearing service for credit default swaps (CDS), having processed no trades since it was launched in December last year.

The exchange officially suspended the CDS contracts offered for clearing (series 8, 9 and 10 of the Markit iTraxx Europe investment grade, Crossover and Hi-Vol CDS indexes) on July 29 following a month-long review of the service.

An official at the exchange told Risk Liffe would consider venturing into the CDS market again, but declined to elaborate.

Atlanta-based IntercontinentalExchange (Ice) and Frankfurt-based Eurex have both begun clearing CDS contracts. Ice cleared $1.67 trillion of trades in the US between March 9 and August 7, and has cleared €37.93 billion in Europe since launching a regional service on July 29.

Eurex, which launched its platform on July 30, has cleared two trades worth a combined €75 million. A clearing initiative by the Chicago Mercantile Exchange has yet to get off the ground despite receiving regulatory approval.

In an interview with Risk in January, Ade Cordell, Liffe's director of over-the-counter services, presciently said there would not be enough business to sustain four clearing ventures. "The market will decide which platform or platforms they want to use. I wouldn't be surprised if four gets whittled down to three pretty quickly, and three may well go to two."

Cordell anticipated Liffe’s platform would attract volumes because it targeted buy-side firms. However, those firms are typically reliant on banks for clearing services, meaning their dealers would also need to sign up to the central counterparty. But the dealers have converged on to Ice’s platform, and Eurex’s to a lesser degree.

See also: NYSE Liffe’s CDS clearing platform in doubt
Liffe awaits CDS clearing trade
Breath of Liffe

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