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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.

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