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CME certifies proposal to clear credit default swaps

Date: Monday, December 29, 2008
Author: Hedgeweek.com

The Commodity Futures Trading Commission has announced that the Chicago Mercantile Exchange has certified plans to provide clearing services for certain credit default swap contracts through CME's clearinghouse, a registered derivatives clearing organisation.

CME has certified that this initiative will comply with the DCO Core Principles enumerated in Section 5b(c)(2) of the Commodity Exchange Act and Part 39 of the CFTC's regulations.

Prior to CME's certification, CFTC staff reviewed CME's plans to clear credit default swaps, including CME's planned risk management procedures, and notified CME that the CFTC staff would not object to the certification.

The CFTC, the board of governors of the Federal Reserve and the Securities and Exchange Commission entered into a memorandum of understanding on 13 November 2008 to establish a framework for consultation and information sharing on issues related to credit default swap central counterparties, facilitate the regulatory approval process, and promote more consistent regulatory oversight.

Pursuant to the memorandum of understanding, the CFTC coordinated and consulted with the staffs of the Federal Reserve and the SEC in reviewing the CME's plans to clear credit default swap contracts.

Based upon this review, the Federal Reserve staff expressed its support for the CFTC staff's decision not to object to the CME's certification.

Acting chairman Walter Lukken says: 'The advent of clearing solutions for the credit default swap market will benefit the financial system significantly by enhancing transparency, reducing counterparty credit risk, and improving the quantity and quality of information provided to federal regulators.'