CME Group Launches European Swap Clearing Service

LONDON -- CME Group Inc. ( CME ) on Monday launched its long-awaited European interest-rate swap clearing service, triggering a three-way contest in the region to handle the most-heavily traded over-the-counter derivatives.

The U.S. exchange operator's CME Clearing Europe unit has focused on commodity contracts since its launch in May 2011, and is expanding into financial derivatives for the first time, clearing interest-rate swaps for banks and buyside firms through several major dealers.

The move brings CME Clearing Europe into direct competition with the Eurex unit of Deutsche Boerse AG (DB1.XE, DBOEF) and the region's dominant clearer of rate swaps, LCH.Clearnet.

The rivals aim to capitalise on new reforms introduced under the Dodd-Frank Act in the U.S. and the European Market Infrastructure Regulation, which will force much of the global $600 trillion OTC market to be cleared--providing a guarantee in the event of a client default--rather than conducted in private, bilateral trades. The new business is expected by exchanges to counter some of the recent decline in existing exchange-traded contracts.

CME's London-based clearing house plans to expand into OTC currency derivatives and credit default swaps later this year, and will also develop clearing services for CME Europe, the company's new exchange which is scheduled to launch with 30 forex futures and options by the second quarter.

Aviva PLC (AV, AV.LN), the U.K.-based insurer, was the first buyside firm to use the service. Dealers including BNP Paribas (BNP.FR, BNPOY), Credit Suisse (CS, CSGN.VX), Goldman Sachs Group Inc. ( GS ), HSBC Holdings PLC (HBC, HSBA.LN), JPMorgan Chase & Co. (JPM), Nomura Holdings Inc. (NMR, 8604.TO) and RBS are using the new service, with Citigroup Inc. ( C ), Morgan Stanley (MS) and UBS AG (UBS, UBSN.VX) set to connect in the coming weeks, CME said.

Derek Sammann, CME Group Inc. Senior Managing Director, Interest Rate and Foreign Exchange Products, said it had begun by marketing the new exchange to its existing 14 European clearing members.

"We have all the technology already," he said in an interview. "The European membership structure will also be considerably different than in the U.S.--more in line with European exchange membership criteria."

The new European exchange, first unveiled in August, is due to receive Financial Services Authority approval in coming weeks.

Write to Michelle Price at michelle.price@dowjones.com

Corrections & Amplifications

This article was corrected March 19 at 1524 GMT because the original version misstated the title and name of CME Group Inc. Senior Managing Director, Interest Rate and Foreign Exchange Products Derek Sammann.

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