Liffe, the international derivatives business of Euronext, said that the Exchange will soon launch a credit default swap offering on Bclear in 4Q08. The CDS will combine the security of an exchange and clearing house with the flexibility enjoyed in the OTC market.
Bclear is the on-exchange administration and clearing service that provides a simple
and cost-effective way to register and process wholesale derivatives trades through Liffe to clearing at LCH.Clearnet. This can reduce the counter-party credit, legal and operational risks associated with OTC deals.
Liffe CDS will enable you to process and clear OTC CDS business via our proven OTC service, Bclear, said a Liffe spokesperson. This will offer increased benefits, such as reduced operational risk and improved management of counterparty credit risk, while still retaining the flexible aspects of pre-negotiation and anonymity in the OTC market.
Liffe CDS contracts will initially be based upon Markit iTraxx Europe indices, the benchmark for European credit protection.
In a related development, Markit announced the launch of the Markit iTraxx Europe Financial Total Return indices.
The new indices replicate the performance of a sample portfolio that buys or sells a Markit
iTraxx CDS contract and invests the remaining notional amount in money market instruments.
These indices have been designed to serve as a benchmark for institutional investors with
debt positions in financial institutions.
The Markit iTraxx Europe Financial Total Return indices are comprised of the following: Markit iTraxx Europe Senior Financials Five-Year Total Return Index; Markit iTraxx Europe Subordinated Financials Five-Year Total Return Index; Markit iTraxx Europe Senior Financials 5-Year Short Total Return Index; and Markit iTraxx Europe Subordinated Financials 5-Year Short Total Return Index.
Markit has licensed Deutsche Bank to offer Exchange Traded Funds on these four new
indices. Index levels will be published on www.indexco.com.