MEFF, the Spanish futures and options exchange, plans to start clearing large over-the-counter trades that mirror exchange-traded instruments. Fernando Centelles, deputy ceo in Madrid, said it is making the move because of derivatives traders increasing concerns about counterparty risk in OTC transactions. Firms are more cautious about counterparty risk because of deteriorating credit quality and an increase in the size of trades, according to Centelles. Trades are increasing in size because more traders are putting on relative-value strategies where the notional size of the trade has to be huge to profit from the arbitrage.
The exchange plans to start clearing lookalike trades over EUR50 million (USD49.9 million) by the end of the month. Centelles said derivatives players do not want to trade these contracts through the exchange as their huge size could move the market against them.
