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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 guarantees.

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.

Kelly Smith
Sharps Pixley, London

06 Feb 2012 | Categories: Gold

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