Eurex clears first CDS on single issuer debt

NEW YORK Aug 28 (Reuters) - Eurex Credit Clear, part of Deutsche Boerse (DB1Gn.DE), said on Friday it has cleared the first credit default swap written on the debt of a single company.

Eurex said the swap, which is used to protect against a borrower defaulting on their debt or to speculate on the borrower's credit quality, is based on the debt of German utility RWE AG (RWEG.DE).

The contract protects 5 million euros ($7.1 million) of debt, Eurex said in a statement.

Regulators globally are pushing for more contracts in the $450 trillion derivatives markets to be cleared with central counterparties to reduce risks associated with the collapse of a large trading counterparty.

Fears over losses from derivatives sparked a run on assets at Bear Stearns and Lehman Brothers last year, which precipitated their collapse.

Eurex and competitor IntercontinentalExchange Inc (ICE.N), which clears trades through its ICE Clear units in the United States and Europe, have already begun clearing credit default swaps based on indexes.

Some clearinghouses, however, have expressed reticence to clear contracts based on the debt of a single issuer because the contracts can be volatile and sometimes have illiquid pricing.

This could result in a clearinghouse having inadequate collateral backing the contracts if a clearing member defaults, leaving the company at risk of large losses.

LCH.Clearnet, Europe's largest independent clearinghouse, plans to offer clearing for credit default swaps on indexes but its chief executive, Roger Liddell, has said the firm is wary of taking on the risks of single name contracts. For details, see [ID:nN29285066]

CME Group Inc's (CME.O) chief executive, Craig Donohue, has also said he wants the option to decline clearing some contracts, including those that are illiquid. [ID:nN22508807]

CME, which runs the Chicago Mercantile Exchange, has a joint venture to clear credit default swaps with hedge fund Citadel Investment Group. (Reporting by Karen Brettell; Editing by Leslie Adler)