Bloomberg, CME team up on OTC clearing

The collaboration will help the operator of the world's largest futures market expand its services.

By Trefis Jul 13, 2012 1:59PM
TrefisIn preparation for the regulatory mandate requiring over-the-counter (OTC) derivatives trades to be cleared through central counterparties (CCPs), CME Group (CME) has announced the establishment of a clearing link in collaboration with Bloomberg.

Nondeliverable forward (NDF) trades that are electronically executed on Bloomberg's foreign exchange platform, FXGO, will be cleared through CME's clearing brokers.

The move will help CME expand its OTC clearing services and will allow it to tap into the growing foreign exchange market.


The Dodd-Frank Wall Street Reform and Consumer Protection Act passed in July 2010 made it mandatory for OTC trades through swap execution facilities (SEFs) to be cleared through central counterparties, as regulations were required to check counterparty risk, particularly after the 2008 credit crisis. Although the mandate still requires approval from the U.S. Commodity Futures Trading Commission (CFTC), exchanges are queuing for a slice of the OTC clearing pie, worth about $3 billion in revenue opportunities, according to Morgan Stanley (MS). 


NYSE Euronext (NYX), for its part, has unveiled plans to migrate clearing services from derivatives markets in Amsterdam, Brussels, Lisbon and Paris to a CCP, NYSE Clearing, which will be completed by 2013. We expect a boost in its clearing business in coming years.


CME Average Daily Volume of Interest Rate Contracts

CME Group has recently made changes in its price-calculation methodology, which has come under severe criticism from floor traders. A transition is currently in place from open cry trading to electronic trading, which accounts for a majority of the trade volume processed by CME. We expect the average daily volume of commodity contracts to rise through the next few years, as high frequency trading algorithms employed by investors gain popularity.  


CME Average Daily Volume of Commodity Contracts

Our $285 price estimate on CME Group's stock is about 10% above the current market price. You can gauge the impact of a change in the forecasts on our price estimate by modifying the interactive charts above.


More from Trefis

Tags: cmeMSNYX
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
280
280 rated 2
473
473 rated 3
639
639 rated 4
637
637 rated 5
662
662 rated 6
640
640 rated 7
498
498 rated 8
287
287 rated 9
121
121 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.