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A new day is dawning for regulation of interest rate swaps. Fifteen banks have agreed to clear 90% of new credit derivatives by December. Banks will also submit 60% of existing interest rate swaps to a central counter party.
What does this mean? It means that trades will clear through an independent counter party called a clearinghouse. What then is a clearinghouse? A clearinghouse is a central counter party that serves as buyer to every seller and seller to every buyer. Commodity futures trades pass through a clearinghouse.
What kind of numbers are we looking at? The interest rate swaps market is a $403 trillion market.
Clearinghouses are scrambling to grab a piece of the action. In the U.S., NASDAQ's OMX- owned facility called the International Derivatives Clearing Group has tested $450 billion of trades as of early August.
Banks have already cleared $2.2 trillion of credit derivatives via ICE Trust, a clearinghouse set up by Intercontinental Exchange Inc. It plans to make the clearinghouse available to buy side hedge funds and other institutions by October.
The Chicago Mercantile Exchange (CME) is preparing a rival platform but no date has been set.
Do you believe that this process will stop the rampant speculation in the derivatives markets?
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Reader Comments (Page 1 of 1)
9-09-2009 @ 4:31PM
Iridium said...
Commodity futures pass through a clearinghouse and we all know that there is no funny business going on there.
The clearinghouse did such a good job of stopping rampant speculation that has driven oil hundreds of percent higher than its true market value.
A clearinghouse won't work if it is nothing but a profit source. If anything they will want more speculative trades in order to maximize their revenue.
We don't need a clearinghouse for derivatives. WE NEED DERIVATIVES LIKE THE CREDIT DEFAULT SWAP OUTLAWED!!!!