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Good News on CDS Clearinghouse

By Anonymous

This is good news:

The Federal Reserve is working on a plan that would give it authority to regulate the clearing of trades for the $33 trillion credit-default swap market, according to people with knowledge of the proposal.

The Fed, the U.S. Securities and Exchange Commission, the Treasury Department and the Commodity Futures Trading Commission are discussing a memorandum of understanding that lays out oversight of clearinghouses that would become the central counterparty to credit-default swap trades, said the people who asked not to be named because the discussions are private.

The SEC and CFTC would also share trading information under the plan, the people said.

Everyone knows there will be more regulation of the CDS market soon, but the worry is that each regulator will impose a different regulatory regime, without any coordination, resulting in an onerous patchwork of regulation. If CDS market participants have to navigate a confusing patchwork or regulations, that could damage the liquidity of the market (which is one of the main attractions of CDS right now). Good for the Fed!

Full post as published by Economics of Contempt on November 12, 2008 (boomark / email).