Investor protection improved with centrally cleared CFD launched in partnership with Commerzbank, ING and Citi.

Cantor Fitzgerald Europe and LCH.Clearnet have announced today they are launching the first European centrally cleared over the counter CFD trading mechanism. A big step towards a more liquid market and better balancing of risks especially for customers who are actively participating in trading CFD’s.

Contracts For Difference (CFDs) are widely used by retail brokerages to offer an expanded set of assets available for trading – including indices, stocks and commodities. Starting today clients have a more secure environment, providing reassurance that the payout from their CFD contract will be honored regardless of the financial state of the issuer of the contract.

LCH Clearnet’s Repo and Exchanges Business CEO, Alberto Pravettoni has stated that by working with CFD providers that meet their criteria for membership, investors in CFDs will benefit from better market pricing and reduced counterparty risk. Cantor Fitzgerald’s European Director Charles Knott added that it is only a logical step for a transparent trading exchange to be in place with the growing popularity of the product.

So far all CFDs have been typically trading over the counter and outside of exchanges and visible liquidity pools, hence should the liquidity provider become insolvent the customer bares the risk of not receiving his payout. This is all going to change if the trade is centrally cleared – as the Lehman Brothers bankruptcy has brought to the attention of the financial markets community, companies can’t always act quickly enough to reduce counterparty risk, even in a case of recognition of an impending default.

We will monitor these developments very closely, as this could be the first step towards allowing CFD trading to actually return to the US. If the European example works, such a mechanism could easily be set up on American soil, allowing clients to regain access to CFD products. We don’t doubt that the Dodd-Frank act is here to stay, but its provisions could be amended many times in the coming years.

Cantor Fitzgerald L.P. is the parent company of Cantor Fitzgerald & Co. and Cantor Fitzgerald Europe.

LCH.Clearnet is majority owned by London Stock Exchange Group (LSE.L), a diversified international exchange group that sits at the heart of the world’s financial community.

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