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Derivatives Traders Adopt Rules to Clear European Credit Indexes 

May 10, 2016

Katie Linsell, Bloomberg

European Union regulation comes into force on Monday that will require traders to start moving the region’s credit derivatives benchmarks through central clearinghouses. 

Group of 20 leaders decided after the financial crisis that over-the-counter derivatives should be traded through clearinghouses where possible to lessen the effects of default and reduce systemic risk. Central counterparties don’t take a position on trades and stand between buyers and sellers in the $12.5 trillion credit derivatives market.

Mandatory clearing in Europe will be phased in over three years, starting with the biggest traders in February. The rules will apply to five-year, euro-denominated contracts on Series 17 and above of the Markit iTraxx Europe index and Markit iTraxx Crossover Index. The investment-grade and high-yield measures of credit-default swaps, which are updated every six months, are currently on Series 25. 

“Today starts the countdown,” said Frank Soussan, global head of CDSClear at LCH, the clearinghouse majority owned by London Stock Exchange Group Plc. “The rules coming into force means that banks and asset managers will start getting prepared to clear before the deadlines kick in.” Read more

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