Wall Street’s largest swap dealers, including Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM), will be required to guarantee trades at clearinghouses starting in March under a government rule set for completion next week.
U.S. Commodity Futures Trading Commission members will meet Nov. 29 to weigh final determinations of which credit and interest-rate swaps must be guaranteed at clearinghouses owned by CME Group Inc. (CME), LCH.Clearnet Group Ltd. and Intercontinental Exchange Inc., according to a statement released by the agency today. Clearinghouses accept collateral from buyers and sellers to reduce the risk from default in a trade.
“Central clearing equalizes access to the market and democratizes it by eliminating the need for market participants to individually determine counterparty credit risk,” CFTC Chairman Gary Gensler said in a Nov. 1 speech.
The CFTC and Securities and Exchange Commission are required by the 2010 Dodd-Frank Act to write rules intended to curb risk in a $639 trillion global market. Lawmakers took action after unregulated trades helped fuel a credit crisis that in 2008 led to the collapse of Lehman Brothers Holdings Inc. and U.S. bailouts for companies including American International Group Inc. (AIG), the New York-based insurer.
The five-member commission’s proposed requirement, approved unanimously in July, included interest-rate and credit swaps already offered for settlement at clearinghouses. The agency said it would later consider other types of swaps.
The Clearing Coalition, a group including investment company Citadel LLC and trading firm Getco LLC, has urged the CFTC to adopt the clearing requirement by the end of the year.
The $639 trillion measure of the global swaps market represents the total notional amounts outstanding of over-the- counter derivatives through June, according to the Bank of International Settlements, a Basel, Switzerland-based organization that promotes global financial collaboration and serves as a bank for central banks.
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