The Deal
Sunday, November 8, 
2:20 am

Banks look to head off regulation of credit default swaps

  Share     E-Mail    Discussion    Print Story
globemoney.gifInvestment banks are reportedly giving their full backing to a mandatory central clearing house for over-the-counter credit derivatives in hopes of heading off a more heavy-handed attempt to regulate the market by creating an exchange. The Financial Times obtained a Morgan Stanley memo regarding an initiative by dealer banks to present an alternative to an overhaul of the $54 trillion industry. 

Continue reading below

Also on Dealscape

"We have teamed up with a small group of dealers to put together a legal and regulatory proposal for CDS which we will propose to Congress and the Fed in an effort to address many of their concerns around CDS," said the e-mailed memo sent by James Hill, a managing director at Morgan Stanley.
Regulators have consistently cited concerns that credit default swaps in particular pose a systemic threat since the contracts are negotiated privately between parties, preventing a clear picture into the size of the market or the exposure of any single party within. The Securities and Exchange Commission is pushing the creation of a regulated exchange to trade credit default swaps and, according to a document obtained by Reuters, has told the various exchanges vying for that opportunity that they'll be exempt from certain regulations.

The SEC's plan is aimed at fast-tracking the creation of one or more central counterparties for credit default swaps, which are used to insure against bond default risk. Meanwhile, the Federal Reserve has been giving out guidelines for a clearinghouse for the industry to police itself and set up the entity amongst themselves.

However, default swaps carry high profit margins for their issuers, prompting fears that the creation of an exchange will cut into the issuers profits. Nine of the largest CDS traders -- including Morgan Stanley, Goldman Sachs  & Co., Credit Suisse Group and UBS -- have joined forced with IntercontinentalExchange Inc. in a proposal to set up a New York-registered bank that would act as a CDS clearer, according to the FT. - George White
  
See FT story
See Dealscape post on SEC plans for a CDS exchange
See Dealscape post on CDS clearinghouse





Post a comment





The Deal Pipeline

Deal Video


Inside The Deal: Linklaters' Schmidt says how regulators handled Pfizer Inc.'s acquisition of Wyeth is an outlier of how others merger reviews will be conducted.


More video...

Crisis On Wall Street
Technology
Deals of The Decade

Community

Industry Insight

Dealing with frozen bank lending

If your bank is not willing to lend, what can you do as your company continues to seek growth?


Judgment Call

The coming age of the renminbi

The Chinese currency will play an increasingly important role in international commerce and finance.


Industry Insight

Banking on PE investments

Howls of protest greeted the FDIC policy statement, but the financial services industry should get over it.


footspacer.jpg footspacer.jpg footspacer.jpg footspacer.jpg footspacer.jpg


©Copyright 2009, The Deal, LLC. All rights reserved. Please send all technical questions, comments or concerns to the Webmaster.