Bloomberg News

Swap-Dealer Clearing Rules Set for Completion by CFTC Next Week

November 21, 2012

Wall Street’s largest swap dealers, including Goldman Sachs Group Inc. (GS:US) and JPMorgan Chase & Co. (JPM:US), will be required to guarantee trades at clearinghouses starting in March under a government rule set for completion next week.

U.S. Commodity Futures Trading Commission members will meet Nov. 29 to weigh final determinations of which credit and interest-rate swaps must be guaranteed at clearinghouses owned by CME Group Inc. (CME:US), LCH.Clearnet Group Ltd. and Intercontinental Exchange Inc., according to a statement released by the agency today. Clearinghouses accept collateral from buyers and sellers to reduce the risk from default in a trade.

“Central clearing equalizes access to the market and democratizes it by eliminating the need for market participants to individually determine counterparty credit risk,” CFTC Chairman Gary Gensler said in a Nov. 1 speech.

The CFTC and Securities and Exchange Commission are required by the 2010 Dodd-Frank Act to write rules intended to curb risk in a $639 trillion global market. Lawmakers took action after unregulated trades helped fuel a credit crisis that in 2008 led to the collapse of Lehman Brothers Holdings Inc. and U.S. bailouts for companies including American International Group Inc. (AIG:US), the New York-based insurer.

The five-member commission’s proposed requirement, approved unanimously in July, included interest-rate and credit swaps already offered for settlement at clearinghouses. The agency said it would later consider other types of swaps.

The Clearing Coalition, a group including investment company Citadel LLC and trading firm Getco LLC, has urged the CFTC to adopt the clearing requirement by the end of the year.

The $639 trillion measure of the global swaps market represents the total notional amounts outstanding of over-the- counter derivatives through June, according to the Bank of International Settlements, a Basel, Switzerland-based organization that promotes global financial collaboration and serves as a bank for central banks.

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net


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Companies Mentioned

  • GS
    (Goldman Sachs Group Inc/The)
    • $183.35 USD
    • 3.29
    • 1.79%
  • JPM
    (JPMorgan Chase & Co)
    • $58.74 USD
    • 0.68
    • 1.16%
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