(Reuters) — CME Group expects to launch its clearing house for the $26 trillion credit default swap market in mid-December, as a deadline for dealers to offer clients access to clearing for the contracts comes due, CME chief executive Craig Donohue said on Wednesday.
The exchange has been testing its clearing house with seven or eight CDS dealers and around 10 buyside firms, to prepare for the launch, Donohue said in an interview with Reuters.
The group is "going through all of the different issues that we have to have them operationally ready to begin clearing trades with us by mid-December," Donohue said. "We're making a lot of progress."
A group including 14 of the largest CDS dealers in June told regulators including the New York Federal Reserve that they would offer buyside market participants access to all viable clearing CDS solutions by December 15.
Central clearing, in which the exchange stands between the two counterparties on the contract and assumes the risk of the failure of a trading partner, is viewed as key to removing systemic risks posed by derivative contracts.
American International Group needed a government bailout in September of last year after it sold hundreds of billions of dollars of protection on risky assets using CDS, and did not have adequate capital to back up its commitments.
Credit default swaps are used to protect against a borrower defaulting on their debt or to speculate on their credit quality.
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