Index CDS one step closer to clearing
ESMA has issued the final draft RTS for CDS clearing. `The draft defines the type and sub-type of CDS that will be subject to the clearing obligation and the dates from which it will apply. The draft stipulates that clearing will initially apply to the following two CDS classes:
| ID | Type | Sub-type | Geographical Zone | Reference Index | Settlement currency | Series | Tenor |
| B1.1 | Index CDS | Untranched Index | Europe | iTraxx Europe Main | EUR | 17 onwards | 5Y |
| B.1.2 | Index CDS | Untranched Index | Europe | iTraxx Europe Crossover | EUR | 17 onwards | 5Y |
Phase-in periods have been extended by three months for counterparty categories 1-3, to allow extra time for CCP authorisation/recognition. Phase-in periods are now as follows:
- Category 1 – 9 months
- Category 2 – 15 months
- Category 3 – 21 months
- Category 4 – 36 months
Frontloading rules are essentially identical to the IRS RTS, firms will have five months following entry into force to determine their Category 1/2 status and the consequent frontloading obligation. Although the CDS RTS is substantially similar to its IRS stablemate, they are separate standards- a firm may be classified as IRS Category 1 (clearing member), but CDS category 2. As per usual, the EC has three months to accept the RTS in full or return it to ESMA for amendment.