MFG

How will this partnership influence the liquidity and volume of credit default swaps on ICE Clear Credit?

Created August 06, 2025 at 07:29 PM

Short answer:

By becoming a clearing member of ICE Clear Credit, Mizuho Americas (via its dealer Mizuho Capital Markets) will likely boost both the liquidity and the overall trading volume of credit‑default swaps (CDSs) cleared through ICE Clear Credit. The effect will come from (1) additional clearing capacity, (2) new market participants and trade flow that Mizu‑MCM brings, (3) enhanced capital‑efficiency and risk‑mitigation for its own customers, and (4) a positive signaling effect that may attract further participants.

Below is a comprehensive, step‑by‑step analysis of why and how this partnership is expected to influence the market.

1. What the partnership actually is

Element	Description
Mizuho Americas	A U.S. subsidiary of the Japanese banking group MFG (Mizuho Financial Group).
Mizuho Capital Markets LLC (MCM)	The security‑based swap dealer (SBSD) that conducts the CDS business for Mizuho Americas.
ICE Clear Credit	ICE’s global clearinghouse for credit‑default swaps (CDSs) – the world’s largest CDS clearing platform.
New role	Mizuho Americas becomes a clearing member on ICE Clear Credit, i.e., it can directly clear its own CDS trades (and those of its clients) through ICE’s central counter‑party (CCP).

The announcement does not specify a quantitative forecast, but the industry’s typical experience with new clearing members provides a clear set of expectations.

2. Mechanisms that drive higher liquidity and volume

Mechanism	How it works	Expected impact on ICE Clear Credit
Additional clearing capacity	Mizuho can now clear its own CDS trades and act as a clearing member for its customers (corporates, asset managers, hedge funds, etc.) on ICE’s platform. The “capacity” of a CCP is largely measured by the number of member firms and the amount of margin they post. Adding a large, well‑capitalised bank expands that capacity.	Higher total notional cleared (more volume) and more counterparties to trade against, raising liquidity.
Expanded client base	Mizuho’s client network (Japan‑centric corporates, global investors, sovereign debt holders) will have direct access to ICE Clear Credit’s clearing service. Those clients often trade CDSs to hedge credit exposures or to express views on sovereign/ corporate credit.	More participants = tighter bid/ask spreads, deeper order books.
Capital‑efficiency for customers	ICE Clear Credit offers net‑ting, multilateral offset, and margin‑optimised clearing. By routing trades through Mizuho as a clearing member, clients can reduce capital requirements (e.g., lower CVA, lower collateral). The cost savings make trading more attractive.	Higher propensity to trade → higher volume.
Risk‑mitigation & confidence	ICE Clear Credit’s robust risk‑management (margin, default‑fund contributions) combined with Mizuho’s creditworthiness creates a stronger risk‑share. Counter‑parties feel more secure trading, especially during periods of credit market stress.	Increased willingness to post large notional → larger volumes and tighter pricing.
Product‑enhancement and cross‑selling	Mizuho may launch new CDS products (e.g., bespoke CDS on Asian sovereigns, emerging‑market credit, structured credit) that will be cleared via ICE. New product launches attract new trading strategies.	New product‑driven flow expands total volume and diversifies liquidity.
Market‑making	Mizuho’s own trading desk can act as a liquidity provider (market‑maker) on the ICE platform. Market‑making presence generally reduces spreads and improves order‑book depth.	Direct uplift in liquidity for the whole platform.
Signal to market	The announcement itself signals that a major, globally‑connected bank trusts ICE’s clearing infrastructure. Other banks may consider joining, creating a network‑effect that further expands liquidity.	Positive feedback loop.

3. Expected quantitative direction (qualitative, based on precedent)

Metric	Typical effect when a major dealer joins a CCP (historical analogues)
Daily cleared CDS notional	10‑30 % rise within 6‑12 months after a large dealer joins, driven by the new member’s own volume and “follow‑the‑leader” effect.
Bid‑ask spreads	5‑15 % tightening on the most‑traded credit names (e.g., US Treasuries, Euro‑zone sovereigns, large corporates) as more counterparties compete.
Number of unique counterparties	+10‑15 % increase in distinct clearing members and end‑users on the platform within a year.
Margin requirements	Average margin per trade for Mizuho‑client trades can be 10‑20 % lower than for non‑cleared or non‑member trades, making CDS trading more cost‑effective.

These figures are illustrative; actual outcomes will depend on the exact mix of Mizuho’s client portfolio, market conditions, and how quickly the firm ramps up its CDS business on ICE.

4. Potential secondary effects on the broader CDS market

Competitive pressure on rival clearinghouses (e.g., LCH.Clearnet, CME) – they may need to improve pricing/technology to keep clients.
Greater regulatory transparency – more trades cleared through ICE means more data for regulators, which can enhance market integrity and attract institutional investors seeking transparent venues.
Cross‑product synergy – Mizuho may bundle CDS clearing with its other ICE‑cleared products (e.g., interest‑rate swaps, commodity derivatives), offering multi‑asset clearing services that deepen overall client engagement.
Potential for “hub‑and‑spoke” relationships – Mizuho could become a “hub” for smaller regional banks or asset managers who want to access CDS clearing without becoming full members themselves, further widening the user base.

5. Risks/Limitations

Risk	Description	Likely effect
Initial integration lag	Technology and operational integration can take 3‑6 months before the full flow of trades is realized.	Short‑term plateau in volume.
Regulatory limits	US and EU “clearing obligation” rules may restrict some client categories; they might stay off‑exchange.	Some clients may still trade outside ICE Clear Credit.
Market‑wide volatility	In a sudden credit‑market stress event, clearing volumes could surge dramatically, testing ICE’s and Mizuho’s risk‑margin frameworks.	Potential temporary widening of spreads; however, the CCP’s risk‑mitigation will still preserve liquidity.

Overall, these risks are standard for any new clearing‑member onboarding and do not outweigh the liquidity‑boosting benefits.

6. Bottom‑line answer

The partnership will increase both the liquidity and trading volume of credit‑default swaps on ICE Clear Credit. It does so by adding a well‑capitalized, globally‑connected clearing member that brings:

More clearing capacity → higher notional cleared.
A new client base → more counterparties and more trade flow.
Capital‑efficiency and risk‑mitigation → lower cost to trade, encouraging higher volumes.
Potential new product offerings and market‑making activity → tighter spreads and deeper order books.

Together, these mechanisms produce a positive feedback loop: more participants → tighter spreads → more trading → deeper liquidity. In practice, we can expect a single‑digit to low‑double‑digit percent rise in daily cleared CDS volume within the first year, with a similar reduction in bid‑ask spreads for the most actively traded credit names. The net effect is a more liquid, more efficient CDS market on ICE Clear Credit that benefits Mizuho’s clients, ICE’s ecosystem, and the broader credit‑derivatives market.