Tuesday, November 4, 2008

ECB supports central clearance for CDS

(FT) The European Central Bank and eurozone central banks on Monday threw their support behind “at least one European solution” for the creation of a central clearing house for over-the-counter credit default swaps.

The statement came after the ECB held a meeting with exchanges and clearers, including Eurex, the derivatives arm of Deutsche Börse and LCH.Clearnet, Europe’s largest independent clearer.

“Participants at the meeting underlined the merits of multiple solutions in general and of at least one European solution. The Eurosystem stands ready, in co-operation with the other authorities, to facilitate the effective collective action of the private sector in this regard,” an ECB statement said.

Efforts to come up with a solution for providing a clearing system for the CDS market are more advanced in the US. They involve four groups: the Intercontinental Exchange, the US-based electronic futures exchange; the CME Group, the world’s largest futures exchange; Liffe, the derivatives arm of NYSE Euronext; and Eurex.

On Friday, US regulators said they were “hopeful” that at least one of the groups vying to provide centralised clearing for the credit derivatives market will begin operations before the end of the year.

European regulators and policymakers have recently grown concerned that there should also be centralised clearing in Europe so that the market is not left with one solution in the US.

That is because they are not convinced that European regulators would have the ability to intervene in a situation where a US clearing house ran into difficulties, given that the clearing house would be subject to US jurisdiction.

The ECB said its meeting “complemented initiatives” by the Federal Reserve Bank of New York and European Commission.

Thomas Book, member of Eurex’s executive board responsible for clearing, said: “We welcome the expressed need for at least one European solution because of the importance of European credit derivatives markets.”

No comments: