Banks to clear credit default swaps through clearinghouse by end of year

July 31, 2008 by · Leave a Comment
Filed under: Industry News 

While reading the morning business news this morning, I came across this snippet. This is the third time we have heard about this central clearinghouse for the corporate debt insurance known as “credit-default swaps”. According to the Bank of International Settlements (BIS), we had $596 trillion dollars of derivatives running around in the OTC market. It is not certain how much of this are credit-default swaps. I am waiting for them to release more concrete information on how this is going to work and if the clearinghouse will actually take on any of the liability of these derivatives?

Here is the snippet from Bloomberg:

Banks that handle about 90 percent of the trading in credit-default swaps told regulators today they will start processing trades through a central clearinghouse by the end of the year.

Dealers including JPMorgan Chase & Co., Deutsche Bank AG and Morgan Stanley said in a letter to Federal Reserve Bank of New York President Timothy Geithner that they will start putting U.S. credit-default swap index contracts through the clearinghouse by Dec. 31. The clearinghouse would be designed to absorb losses in the event a major market-maker fails.