CME Launches Gold Forwards Clearing in London
CME Group Inc.’s customers got their wishes answered when CME Clearing
Europe (CMECE) launched its centralized clearing service for
over-the-counter (OTC) London Gold Forwards on 30, January 2012. The
London-based CMECE is 100 percent owned by CME Group Inc., serves CME’s
non-US customers and is regulated by the U.K’s Financial Services
Authority. CMECE started clearing OTC derivatives on 6, May 2011. What
is exciting is that CMECE continues to execute its expansion plan and
the London Gold Forwards is its very first physically settled product.
The clearing service uses CME ClearPort to clear, settle and deliver
gold forward contracts that are listed and defined under COMEX rules and
regulations and governed by Chapter 334 in the NYMEX Rulebook, and have
maturities ranging from “tom” to 10 years.
According to CME, the key benefit to market participants is that
transactions continue to be executed OTC but are then sent to CME
ClearPort for centralized clearing where CME essentially removes credit
risk for market participants by providing both counterparty and delivery
CME ClearPort clears over 14 million contracts each month, connecting
more than 17,000 registered users, according to CME. CME ClearPort
boosts efficiency by abolishing onerous documentation, allowing margin
offsets, and providing fair mark-to-market and netting. The contracts
stay as forwards while every trade opens a separate position. On the
delivery date, positions are netted down. Each day, customers need to
process only one payment and one delivery. On a daily basis, the net
present value of the profit or loss of the position becomes the
collateral amount which can be used to meet other margin requirements
within the clearing house.
The addition of the London Gold Forwards as well as future financial
derivatives to CME Clearing Europe’s clearing services is expected to
further heat up competition for derivatives clearing in Europe.
Sharps Pixley, Londonwww.sharpspixley.com