In an effort to wrest business away from Wall Street, the Chicago Mercantile Exchange has set up a program to hold collateral for derivatives traders.
Jack Sandner, chairman of the exchange, said in a teleconference last week that it has established the world's first swaps collateral depository.
The depository will increase the stability and security of offexchange swaps transactions worldwide, he said.
"This is a private-sector initiative to centralize worldwide swaps activity," Mr. Sandner said.
The swaps collateral depository, which is expected to go online next fall, will receive swaps transactions from commercial and investment banks, mark them to market, and report positions on collateral held for member firms. The system will not guarantee swaps transactions among dealers.
The depository is being set up by SunGard Capital Markets, a risk management software provider, and Society for Worldwide Interbank Financial Telecommunications, a global financial communications organization. It will be independent of the exchange and regulated by the Federal Reserve.
"The amount of interest-rate swaps outstanding in the market has grown from almost nothing a few years ago to more than $6 trillion at the end of last year," said Mr. Sandner.
Member banks will be able to achieve savings in operational costs, he noted, by pooling their quarterly reset payments into a single pay-collect transaction, reducing redundant payments.
The system, set up for dealer-to-dealer swaps transactions and not customer transactions, has yet to receive any formal commitments from swaps dealers.
Mr. Sandner said, however, that many of the largest swaps dealers have expressed interest in the new depository.
"This joint venture possible will obviate any legislation of the market," said Mr. Sandner. "It's an all-encompassing intervention from the private sector."
