25 Investment Management Firms Commit to Single-Name CDS Clearing

NEW YORK, December 16, 2015 – The International Swaps and Derivatives Association, Inc. (ISDA), Managed Funds Association (MFA) and SIFMA’s Asset Management Group today announced that several of the Associations’ collective member firms have pledged to begin voluntarily clearing their single-name credit default swap (CDS) trades through central counterparties (CCPs).

The 25[1] buy-side firms that have committed to single-name CDS clearing are: AB, Anchorage Capital Group, Apollo Global Management, LLC, AQR Capital Management, LLC, BlackRock Inc., BlueMountain Capital Management, LLC, Brigade Capital Management, Citadel LLC, Claren Road Asset Management, LLC, Cyrus Capital Partners, LP, DCI, LLC., DW Partners, LP, Eaton Vance Management, Field Street Capital Management, LLC, Gracie Asset Management, Hutchin Hill Capital LP, Kingdon Capital Management, LLC, Marathon Asset Management, LP, MKP Capital Management, LLC, Och-Ziff Capital Management Group, PIMCO, Pine River Capital Management, Saba Capital Management, L.P., UBS O’Connor LLC, Zais Group, LLC.

The firms’ initiative is intended to enhance the transparency and efficiency of single-name CDS and to promote a robust marketplace that can be accessed to manage credit risk. The 25 firms will focus initially on voluntarily clearing eligible single-name CDS transactions, with the goal of migrating existing positions over time. The firms will work to develop the necessary processes internally to maximize efficiencies in booking, settling and maintaining positions. 

While recognizing the need for all market participants to make independent business decisions regarding their activities in the single-name CDS market, the 25 firms are making the following commitments with regards to the voluntary clearing of their single-name CDS trades:

Buy-side Firms’ Statement on Single-Name CDS Clearing:

We are committed to improving the market structure of fixed income markets and increasing efficiencies where possible.
We support clearing more single-name CDS with the goal of improving liquidity, transparency, market efficiency and market efficient pricing and encouraging broader market participation in the single-name CDS market.
We expect to move most of our future trading of single-name CDS to cleared instruments with a goal of migrating existing positions over time through back loading and rolling.
We continue to see the need for improvement in margin methodologies and asset protections as well as the need for consistency with other, similar fixed income products (bonds, futures and repo), and we believe moving to clearing is the best method to effect this improvement.
While we need to undertake additional work to create the right operational efficiencies for booking, settling and maintaining positions, a majority of the firms are targeting the first quarter of 2016 for a transition with the remainder intending to do so as soon as practicable thereafter.

“The single-name CDS market delivers real value by giving market participants a tool to manage and mitigate their credit exposures. Despite this value, single-name CDS liquidity has deteriorated sharply in recent years. The commitment by the major buy-side firms to move to central clearing will create efficiencies and increase transparency in the single-name CDS market, which will encourage more participants to enter this important market,” said Scott O’Malia, ISDA’s Chief Executive.

“MFA has long been a leader in supporting the goal of central clearing as a way to reduce systemic, market and counterparty credit risk. We support the efforts of these firms to improve liquidity and transparency in the single-name CDS market, and look forward to continuing our work with regulators to resolve ongoing cost, margin and asset protection issues currently presenting hurdles to full buy-side participation,” said Richard H. Baker, MFA’s President and CEO.

“Single-name credit default swap transactions provide market participants with an important option for managing credit risk,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO. “SIFMA’s Asset Management Group supports the asset managers’ work to promote the viability of the single-name CDS market by enhancing liquidity, transparency and efficiency that will incentivize investor participation and increase the benefits of these transactions to market participants.”

[1] Gracie Asset Management was added to the list on December 17, 2015.