The EU had hoped to have market participants voluntarily set up an
entity to clear off-exchange traded contracts by June 2009. However a
spokesman for EU Internal Market Commissioner Charlie McCreevy
told
Reuters that "a firm engagement was expected from the involved industry
and regulators. This engagement has not been given."
Part of the reason that industry players and regulators have butted heads on the clearinghouse are concerns over the geographic
scope of the new entity. EU officials want clearing done inside the
27-nation union, but transnational banks with an eye on how similar
regulation is likely to develop in the U.S. are balking at having to
put up collateral for clearinghouses on both sides of the Atlantic, a
problem likely to crop up later this year when Congress starts
considering new regulation for the CDS market.
"This is an indication of how difficult it is to regulate this area," Robert Claassen, a partner with law firm Paul, Hastings, Janofsky
& Walker LLP, told The Deal. "It's all the same kind of dynamics, although the EU
always has an additional layer of complexity given the number of
nation-states that have to work together."
According to Claassen a host of issues will have to be dealt with by both Congress and the EU as regulation of the CDS market is bound to help some and hurt others.
"Once you force these things onto an exchange, you're identifying some
winners and some losers. If you force it onto an exchange, the futures
market does well, the OTC markets don't do as well. That same fight
will be here in the U.S.," Claassen said. -
George White
See Reuters story
See Deal Video interview with Robert Claassen on CDS regulation
Initial efforts by the European Union to create a clearinghouse for credit default swaps collapsed Tuesday, after the bloc's executive European Commission couldn't work out the kinks in a draft agreement put together in December.
