Milestone Dodd-Frank Compliant CDS Trade Completed
February 10 2011 - 4:02PM
Dow Jones News
The first credit-default-swap trade that is believed to be
compliant with new swap trading rules being proposed by U.S.
regulators as a result of the Dodd-Frank financial overhaul law was
completed Thursday.
Behind the trade were BlueMountain Capital Management, a U.S.
hedge fund, and Deutsche Bank AG (DB, DBK.XE), acting as the dealer
and processing agent.
Credit default swaps, or CDS, are over-the-counter derivatives
that allow investors to hedge or speculate against losses on
corporate or government debt.
The CDS in question was executed on an electronic platform for
institutional customers run by Tradeweb, which is considered a
leading candidate for swap execution facility, or SEF, status under
the new rules.
SEFs are a type of trading venue born out of the Dodd-Frank law.
To be eligible as a SEF, platforms have to allow multiple customers
to access prices from multiple dealers at the same time, should
they wish.
"The financial markets are now preparing for the new regulatory
environment under Dodd-Frank," said Scott Beardsley, principal and
head of operations at BlueMountain Capital, in a statement.
"Today's trade represents the first-ever transaction to fit within
what many market participants expect to be the new model for
central clearing and electronic execution of derivatives."
Under the new law, a large part of the swaps market will have to
be traded electronically and centrally cleared by processors that
guarantee the swap in case either counterparty fails. Regulators
want to see as many swaps as possible go through these
clearinghouses because they believe it will reduce counterparty
risk in the financial system and prevent another financial
crisis.
"After implementation of Dodd-Frank, clearing and trading on
regulated electronic platforms will be required and the market is
now accelerating its preparation for the new environment," said Lee
Olesky, CEO of Tradeweb.
The electronically executed and cleared CDS trade from
BlueMountain was cleared by CME Clearing, part of CME Group Inc.
(CME), and ICE Trust, the clearing arm of IntercontinentalExchange
Inc. (ICE).
-By Katy Burne, Dow Jones Newswires; 212-416-3084;
katy.burne@dowjones.com
CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024
CME (NASDAQ:CME)
Historical Stock Chart
From Jun 2023 to Jun 2024