CME Group (CME) and Citadel to Launch First Electronic Trading Platform with Counterparty Clearing Facility for Credit Default Swaps

October 7, 2008 9:39 AM EDT

CME Group (NYSE: CME) and Ken Griffin's Citadel Investment Group, L.L.C. today announced they have executed a non-binding term sheet to launch a joint venture company within 30 days, which will be the first electronic trading platform that is fully integrated with a central counterparty clearing facility for Credit Default Swaps. CME Clearing will be the central counterparty for this solution.

The joint venture will operate as an independent organization with its own board of directors and management team. CME Group and Citadel have invited major CDS market participants to join as Founding Members by allocating up to 30% of the equity in the venture, and by offering certain market maker privileges to such Founding Members. The equity and market maker incentives are designed to encourage participants to both migrate existing positions and to trade new CDS contracts on the platform.

As a fully integrated trading and clearing solution, the joint venture will provide the following benefits to market participants:

• Enhanced liquidity through standardized contracts with fixed coupons for all the leading CDS indices and their underlying single-name components, with OTC market conventions, including credit event procedures;
  
• CME Group's well-established clearing, settlement and risk management capabilities with Citadel's state-of-the-art technology for price discovery, matching engine, and risk management analytics;
  
• Facilities to convert existing bilateral trades to standardized contracts and straight through processing into CME Clearing, reducing bilateral credit risks, outstanding notional balances and capital requirements while providing more flexibility for trading in and out of existing positions; and,
  
• The joint venture has entered into preliminary licensing discussions with Markit, a leading financial information services company that owns the most widely traded CDS indices and Markit RED, the industry-standard CDS identifiers.

CME Group Inc. operates two self-regulatory futures exchanges, CME and CBOT.

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• Citadel
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