Exclusive Online Only ContentCME Expands OTC Business With Credit Market Analysis Acquisition
March 26, 2008
CME Group, through its acquisition of Credit Market Analysis (CMA), a London-based provider of derivatives market data for the buy side, has gained two over-the-counter derivatives pricing systems--CMA QuoteVision and CMA DataVision.
According to CME, the move will provide the exchange with greater exposure to the $46 trillion notional credit derivatives market and offer the potential to leverage its clearing and execution capabilities in the sector. Under the agreement, subsidiary CME Swaps Marketplace will acquire 100 percent of CMA’s share capital, its operating assets and intellectual property for an undisclosed amount.
“CME Group’s OTC strategy has focused on identifying opportunities where we can leverage our strengths in technology and clearing services, which will create greater efficiencies and opportunities for market participants,” said CME chief executive Craig Donohue in a statement Tuesday. “It’s impossible to overestimate the importance of accurate, timely and reliable sources of market data to the smooth functioning of financial markets, especially in today’s environment.”
Added Donohue: “Working together, we believe that we can expand CMA’s existing services in the credit derivatives markets, as well as to additional asset classes that would benefit from additional transparency or central counterparty clearing services.”
The deal follows the announcement last week by the Chicago Mercantile Exchange and Chicago Board Options Exchange parent that it has agreed to purchase the New York Mercantile Exchange, after a period of exclusive negotiation that began in January. The CMA transaction also comes as exchanges are vying to take advantage of a push by regulators and market participants to shed more light on the credit derivatives market. Exchanges are pointing to their infrastructures and pricing services as more transparent mechanisms for OTC derivatives than the dealer-dominated markets or methods.
Dealers dispute such claims, asserting that exchanges offering indicative price discovery tools for an OTC market is essentially no different than credit derivatives pricing currently offered by buy-side-focused multidealer platforms such as MarketAxess and TradeWeb. Both exchanges and dealers are promoting their versions of centralized clearing for credit derivatives.
CMA, which covers credit default swaps (CDS), collateralized debt obligations, asset-backed securities indexes, loan CDS, various structured products, and convertible and corporate bonds pricing, will become a wholly owned subsidiary of CME but will remain in London, retain its name and continue to be helmed by CEO Laurent Paulhac. The rest of the company’s management is also expected to stay on. CMA expects to boost use of its pricing tools by leveraging CME’s clearing and transaction processing capabilities.
QuoteVision is a price discovery management tool that enables traders to view, organize and store quotes they receive from trading partners “regardless of format,” according to the companies. The module “provides a clear structured view of … indicative quotes.” Firms can use QuoteVision to analyze risk exposure, aim for best execution and catalogue all intraday quote information, according to CMA’s Web site.
OTC traders often receive credit derivative quotes from their counterparties via e-mail. QuoteVision works by “instantly” converting the content of the e-mails--which can contain many separate prices--into ranked quotes for easier analysis.
The DataVision price verification tool culls indicative prices from 30 leading buy-side firms including hedge funds, asset managers and the buy-side desks of leading global investment banks. DataVision can be used by firms to do end-of-day mark-to-market and benchmark assessment, produce accurate profit-and-loss statistics, gain a wider view of the market, and feed financial models with clean pricing data, says CMA.
