Citi clears CDS index option trades through ICE Clear Credit

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Mariam Rafi, Head of OTC clearing and FX prime brokerage, Americas, Citi.

Investment bank Citi has traded and cleared the first client-executed credit default swap (CDS) index option trades in the US through ICE Clear Credit, part of the clearing arm for market operator Intercontinental Exchange (ICE).

“We’re excited to work with ICE Clear Credit as they introduce and build an innovative solution for clearing of CDS Index Options,” said Mariam Rafi, Americas head of over-the-counter (OTC) clearing and FX prime brokerage (PB) at Citi. “With portfolio margining opportunities across single name, index and option instruments, this is an important step that will help drive capital efficiencies and improve risk management for all market participants.”

ICE Clear Credit launched clearing services for CDS Index Options in late 2020. It currently offers clearing of index options on the CDX North American Investment Grade and High Yield Index underlyings. Options on iTraxx Index instruments are expected to be added in 2021.

“ICE Clear Credit’s new clearing services, designed in close collaboration with the trading community, deliver market evolution and effective execution and risk management tools,” said Samuel Page head of North American Macro Credit and IG CDS Trading at Citi. “We expect this will help lead to increased adoption of CDS Index Options by end-users and overall elevated trading activity and market depth.”

Stan Ivanov, president of ICE Clear Credit.

“During the last year, we saw tremendous momentum across our CDS complex as customers accessed our services to execute macro strategies and manage risk during times of unprecedented market volatility,” said Stan Ivanov, president of ICE Clear Credit. “Our CDS index options clearing services, based on a robust and capital efficient portfolio risk management approach, will help bring additional standardisation, transparency and depth to the CDS market.”

ICE Clear Credit’s Index Options solution provides a number of innovations including portfolio margining and a common exercise-and-assignment platform where all market participants, dealers and buy-side firms, can perform time-critical decision making in a centralized, risk-managed and technologically advanced fashion.

ICE Clear Credit cleared over US$30 trillion in combined client/dealer notional amount in 2020, with 78% originating from client-related transactions. ICE Clear Credit also reported a new record in March for both the highest ever monthly combined client/dealer Index volume at US$6.8 trillion notional amount, and the highest ever monthly client Index volume at US$2.9 trillion notional amount, in both cases more than doubling the previous monthly volume.

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