Tuesday, December 23, 2008

SEC OKs LCH.Clearnet for U.S. swaps clearinghouse

(Reuters) - The Securities and Exchange Commission gave the go-ahead on Tuesday for LCH.Clearnet Ltd to begin operating as a U.S. central counterparty for credit default swaps.

LCH already acts as a central counterparty in Europe, where it assumes the legal counterparty risk involved when two of its members trade financial instruments.

The SEC approved some temporary exemptions that allow LCH to act as a counterparty, a move which should help add transparency to the unregulated multi-trillion-dollar credit default swaps market, SEC Chairman Christopher Cox said in a statement. "These conditional exemptions will allow a central counterparty to be quickly up and running, while protecting investors through regulatory oversight," Cox said.

The SEC developed the temporary exemptions after consulting with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Commodity Futures Trading Commission and the U.K. Financial Services Authority.

The exemptions will let LCH launch a clearinghouse in the U.S. market while giving the SEC time to review their operations and decide if they should be given permanent permission to operate, the agency said.

The virtually-unregulated over-the-counter market in credit default swaps has played a significant role in the credit crisis, including the multi-billion-dollar taxpayer rescue of American International Group (AIG.N).

From the WSJ:

In October, Depository Trust & Clearing Corp. announced plans to take over European-based LCH.Clearnet in a €739 million ($1.03 billion) deal. The deal will result in the formation of the world's largest clearinghouse company owned largely by users.

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