Credit default swaps (CDS) were thrown into the spotlight in late 2008 after the credit crisis put markets into a tailspin. Exchange efforts to develop central clearing facilities for CDS began last fall. After going through the regulatory approval process, The Intercontinental Exchange (ICE) began clearing CDSs on March 9 and CME Group received its exemption from the SEC to clear and trade CDSs through its clearing venture with Citadel, CMDX, on March 13.
New York insurance superintendent Eric Dinallo wrote a thought-provoking piece in the Financial Times yesterday on financial regulatory history, offering a look at the regulatory journey of CDSs. Dinallo says that the decision to exempt CDSs from CFTC and SEC regulation in the Commodity Futures Modernization Act of 2000 was one of the causes of the financial crisis. Dinallo argues that CDSs must be regulated and sellers should be required to hold sufficient capital. “That will make them more expensive, but it will mean the guarantee has real value,” he says. The story for CDSs is far from over, and it’s probably going to get a lot more interesting.
Tags: CFTC, CME Group, credit default swaps, ICE, SEC
