MCC280

America Needs an Independent Clearinghouse for OTC, CDS

Jeff,

I would like to thank you and Paul for a well contrived article that covers the need of a GENUINE third party clearer in these markets, such as CME. Anyone that reads the Peterfly article needs to know that he has a well noted general disdain for CDS and anything OTC, he stands to gain nothing from the CME venture so naturally he will be opposed. The risk system his company, Interactive Brokers, developed is limited to standardized exchange traded products only, I suspect he will get pressure from customers that want to use these products and may lose them if he denies use. He also hates Citadel, they directly compete in options market making and Citadel does double the business IBKR does. He is a straight arrow and unlike other major firms, IBKR does not extend “special” credit to hedge funds via offshore “credit facilities” or by doing OTC derivatives trades or swaps with hedge fund customers as counterparties. As it stands in an industry that is losing customers in general, he can't afford to lose customers if he further limits has product offerings.

CME rolled out SPAN in 1988 and it has become the standard for risk analysis for the entire industry. In terms of clearing and risk management, nobody does it better than CME. Interesting little fact here, even The Clearing Corp uses SPAN. SPAN analyzes calculates risk using scenarios that take into account individual and broad market situations and assesses necessary margins. CME is a genuine 3rd party regulator has interest in protecting itself from risk, the banks will control The Clearing Corp and required margin under the guise of ICE as a "3rd party".