Interest rate and credit index swaps will be the first derivatives to face clearing requirements this year under the Dodd-Frank Act, said U.S. Commodity Futures Trading Commission chairman Gary Gensler.
The agency’s staff is preparing recommendations to require clearing of fixed-to-floating interest rate swaps as well as indexes of North American investment grade and high-yield credit swaps, Gensler said in a speech prepared for the Sandler O’Neill Global Exchange and Brokerage Conference in New York.
Dodd-Frank, the 2010 financial-regulation overhaul, intends for most swaps to be guaranteed by clearinghouses that seek to reduce risk in trades by standing between buyers and sellers. Largely unregulated swaps helped fuel the 2008 credit crisis.
“Swaps market reform also benefits markets by increasing the use of central clearing, which promotes the financial integrity of markets and lowers the risks of the highly interconnected financial system,” he said in the speech.
The CFTC’s clearing determinations will probably also include basis swaps and forward rate agreements. Overnight index swaps in U.S. dollars, Euros, British pounds and Japanese yen will probably also face the clearing determination, Gensler said. Some European iTraxx, high volatility and crossover iTraxx indexes will probably also face the clearing requirement, he said.
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