SEC Approves CME's Credit-Default Swap Clearing Plan
March 13 2009 - 5:44PM
Dow Jones News
CME Group Inc.'s (CME) plan to offer clearing for credit-default
swap trades surpassed the last major regulatory hurdle Friday after
the Securities and Exchange Commission gave CME's clearing platform
the green light.
The clearinghouse, dubbed CMDX, is a joint venture with the
hedge fund firm Citadel Investment Group. The SEC's approval will
allow CME to open the second-ever clearinghouse for credit-default
swaps in the United States and give the company a chance to compete
for business with IntercontinentalExchange Inc. (ICE), which
launched its own credit-default swap clearinghouse earlier this
week.
"The SEC is committed to increasing investor protection and
reducing systemic risk by facilitating the development and
oversight of central counterparties to clear credit default swaps,"
said SEC Chairman Mary L. Schapiro. "Today's actions will further
enhance opportunities to manage the risk related to credit default
swaps and improve the transparency and integrity of the market for
these products."
Some critics believe these complex instruments have played a
role in the financial crisis. As evidence, they point to the
near-collapse of American International Group Inc. (AIG), which
issued credit-default swaps without having enough collateral to
fulfill the provisions in those contracts. As a result, regulators
and lawmakers have pushed for centralized clearing of these complex
financial instruments as a way to mitigate risk to the wider
marketplace and shed some light into this now-opaque market.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com