The Federal Reserve has given futures exchanges until Oct. 31 to present written plans on how they'll make the market more transparent, said four people familiar with the request. The Fed called banks and exchanges into three meetings in two weeks, pressing them to agree on a clearinghouse that would require dealers to post collateral and pay into a fund that would absorb losses if one of them were to fail.
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Four groups are vying to operate clearing operations, including a partnership between Chicago-based CME Group Inc. and Citadel Investment Group LLC and a team consisting of dealer- owned Clearing Corp., Atlanta-based Intercontinental Exchange Inc. and credit-default swap index owner Markit Group Ltd. Eurex AG, the world's biggest futures exchange, and NYSE Euronext have also submitted proposals.

The push to make the industry more transparent may finally let exchange-traded derivatives gain traction after years of failing to compete with banks. Eurex, the world's biggest futures exchange, opened the first market for exchange-traded credit derivatives in March 2007, beating Chicago Mercantile Holdings Inc. and Euronext, though dealers resisted moving to their platforms because it threatened their profits.

``The CDS market is going to go to exchanges,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., which manages about $24 billion, said at the Hedge 2008 conference in London on Oct. 23. ``That's a very good development. Not good for the banks but good for everyone else.''

http://www.bloomberg.com/apps/news?pid=206...&refer=home

nb: they're deadly serious about this; the rules of the game are changing, forever, and any existing players trading largely on proprietry information are going to face some business-threatening challenges in the year or two ahead.

It's called pulling the ladder up, I believe.

The current value of credit derivatives outstanding is believed to be about $30,000bn, according to dealers, suggesting the nominal value of outstanding contracts has more than halved in recent months. Risk exposure is often estimated at about 4 per cent of the notional value outstanding.

In a meeting hosted in Brussels last week to discuss over-the counter derivatives markets, Charlie McCreevy, European Commissioner for the Internal Market and Services, said his office would shortly begin a consultation on post-trade services, according to a source present at the meeting.

The consultation is expected to address whether price transparency, interoperability and separation of accounting would be desirable in exchange traded derivatives.

CME Group’s planned clearinghouse for credit default swaps will be ready to go at the end of this week—and can begin operating after it gets regulatory approvals and completes testing with trading firms, CME managing director Tim Doar said today.

CME, the world’s largest derivatives exchange, has passed a series of internal tests aimed at gauging the system’s technical capability, financial safeguards and ability to conform to rule changes, Mr. Doar said in an interview.

Actually if anything it broadens the market.

Then the "important people" must be out of the game, no?

Nov. 4 (Bloomberg) -- The Depository Trust & Clearing Corp. will publish details of the top 1,000 credit-default swaps today, bowing to regulatory pressure for more transparency in the $47 trillion market.

The data from the DTCC, which operates a central registry, will for the first time offer a clearer picture of the amount wagered on the creditworthiness of the world's companies and governments.
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The DTCC, which matches and confirms 90 percent of electronic trades from the biggest dealers in the market, will list the companies and countries linked to the most credit- default swaps, including both the gross amount and a net figure that excludes offsetting trades between two parties.

After canceling out overlapping trades, investors have taken out a net $22.7 billion of contracts based on Italy's debt, $16.7 billion against Spain and $12.5 billion on Deutsche Bank of Frankfurt, the report shows.
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Among companies, GE Capital Corp., the finance arm of General Electric Co., New York-based Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. had the biggest dollar amount of contracts tied to their debt on a net basis after Deutsche Bank, Germany's biggest bank, the DTCC said. New York- based Merrill agreed in September to sell itself to Bank of America Corp.

Actually if anything it broadens the market.

won't this make price discovery easier and end the "mark to model" concept, or will the exchange just be suspended in a big crisis, hence allowing Mark to model illusion to continue. I didn't see a date for exchange to start operations..am i being thick?

won't this make price discovery easier and end the "mark to model" concept, or will the exchange just be suspended in a big crisis, hence allowing Mark to model illusion to continue. I didn't see a date for exchange to start operations..am i being thick?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

nb: they're deadly serious about this; the rules of the game are changing, forever, and any existing players trading largely on proprietry information are going to face some business-threatening challenges in the year or two ahead.

Proposals went in on the 31st (stateside) - these will be reviewed and a winning bid chosen and dates set. I'd take a guess that the eventual target will be 1H09 judging by the speed all this is moving so far.

Yes, it will make price discovery easier. I gather (around the traps) that the lack of continuous disclosure (in terms of knowing what net notional is outstanding on a given name at the time of origination) has been an embarrasingly huge problem in the market and a major contributor to the lockup.

Why is price discovery difficult at the moment?

What is an example of proprietary information that will become more clear on the exchanges?

Net outstandings are proprietary information (even post-CTCC's spadework and disclosure - not everything is cleared this way) as are premia.

The opacity within the present system makes it impossible to value (ie, price) the instruments from a market perspective.

It's the debt equivalent of having no idea about how much stock has been issued.

In addition to the net outstandings another issue is net exposure (how much net notional a given issuer has outstanding).

Again this information is completely proprietary at present and will cease to be before we're done here.

I'm not convinced that finding spreads is proprietary with the current framework - buy sides have tools such as QuoteVision for which they can get the best bid/ask from several sell sides.

Another point on price discovery - one these instruments become exchange traded the possibility of algorithmic (secondary) trading opens up.

Again this boosts liquidity hence discovery.

Not good news for the institutions trading heavily on prop. information at present though - they're going to need to reinvent themselves to a certain degree (one of the links I pasted prior has a reasonably thorough impact analysis in it).

Proprietary to whom?

Why can't people do this at the moment? For example single name vs indices fair value trade?

What prop information?

Each sell side only knows what notional they have outstanding on the name.

The buy side is completely in the dark.

And nobody (not even CCTC) can net off the trades adequately to arrive at net notional.

It's a grim state of affairs for someone coming from the equities world.

I'm missing something obvious here. Why does it matter what the outstanding notional is for a given name and why should the buy side care? Unless we are assuming that a large majority of names are going to default and we are going to get problems when settling.

That's exactly the problem - without net notionals we have no idea what a given issuer's exposure is (ie, the AIG debacle) and also we have no idea whether or not a given name is near to default; lack of transparency has locked the underlying market (in origination) up completely.

This is why investors won't invest in investment grade debt. It's a biggie.

But this won't solve things like the AIG problem if I am understanding this correctly. I believe that the exchanges will have single name, indices and standars index tranches (all corporate backed). The problems we have had with AIG (subprime mortgage backed, selling super senior protection) will not show up.

Assume by a given name you mean counterparty rather than an entity that has had protection written on it. Again, I'm not sure how the exchanges will solve that as they will have only liquid instruments.

Maybe I'm being too pessimisstic.

It'll show up in the market data (position on a trade by trade basis is disclosed and analysis of the now-public historical will reveal all).


The name (ie, entity that had the protection written on it). I'd expect the counterparty position to be as opaque transactionally speaking as they are in the equities world. However the counterparty will now have a liquid primary and aftermarket and will almost certainly have to value the asset accordingly (ie, daily reprice) - and - for some counterparties, this will also imply daily disclosure of their position.


You are.

But I'm not convinced it will, as I rdckon a lot of the protection sold by AIG was done on a bespoke basis (the stuff we see on DTCC is for standard products, and i assume the same will be true of the exchanges.
:
This happens at the moment. People tend to use Markit EOD spreads to mark their positions. Unless you are saying that this will be done is a more transparent way - i.e. visible to all. But again, this won't be for all products IMO

My dad was telling me about a car insurance company in Malta when he was stationed there in the late 50's early 60's. The insurance was dirt cheap and protected you from getting busted with no insurance. The small print meant you were liable for everything so drive carefully.

Or does the product actually have some value?

"It'll show up in the market data (position on a trade by trade basis is disclosed and analysis of the now-public historical will reveal all)."

But I'm not convinced it will, as I rdckon a lot of the protection sold by AIG was done on a bespoke basis (the stuff we see on DTCC is for standard products, and i assume the same will be true of the exchanges.

"However the counterparty will now have a liquid primary and aftermarket and will almost certainly have to value the asset accordingly (ie, daily reprice) - and - for some counterparties, this will also imply daily disclosure of their position."


This happens at the moment. People tend to use Markit EOD spreads to mark their positions. Unless you are saying that this will be done is a more transparent way - i.e. visible to all. But again, this won't be for all products IMO

As discussed

The Federal Reserve is seeking to become the lead regulator for clearing trades in the $33 trillion credit-default swap market, according to people with knowledge of the proposal.
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The SEC and CFTC would also share trading information under the plan, the people said.
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An announcement of the regulatory structure could come by the end of the week when President George W. Bush hosts a gathering of world leaders in Washington to discuss ways to fix the financial crisis, said one of the people who has read a draft of the plan.

Prudential Oversight

Immediate Actions by March 31, 2009
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Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should: speed efforts to reduce the systemic risks of CDS and over-the-counter (OTC) derivatives transactions; insist that market participants support exchange traded or electronic trading platforms for CDS contracts; expand OTC derivatives market transparency; and ensure that the infrastructure for OTC derivatives can support growing volumes.

Nov. 19 (Bloomberg) -- U.S. regulators want banks and insurers to disclose information about all their credit-default swap trades to a central warehouse as they press the $47 trillion market to become more transparent, according to a person with knowledge of the discussions.

The Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission want information about credit-default swaps that don't conform to standard terms to be disclosed in a central warehouse that would make sure all trades get recorded, said the person, who declined to be identified because the discussions are private. The requirement would provide more detail about the types of contracts that almost drove American International Group Inc. into bankruptcy.
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While regulators don't expect all terms of those trades to be recorded in a registry, basic details could include which security is being protected, how much and by whom, the person said.

That would give regulators enough data to identify potential trouble spots that may be used along with other data made available through the companies that they oversee.

AIG ceded control to the U.S. government on Sept. 17 in a bailout when it was unable to come up with collateral on $440 billion in credit-default swaps backing collateralized debt obligations.

Such transactions typically aren't kept by the warehouse because they don't adhere to standard documents under which the most common credit-default swaps trade.

Dec. 4 (Bloomberg) -- New York approved Intercontinental Exchange Inc.’s application to form a state-regulated trust to guarantee trades in the $31 trillion credit-default swap market, boosting the company’s bid to beat rival CME Group Inc. in running a clearinghouse for the trades.

The state Banking Department approved the application after a meeting today, Chairman Richard Neiman said in a statement. The approval paves the way for Intercontinental, the second-largest U.S. futures exchange also known as ICE, to raise capital to fund the clearinghouse, according to the statement. ICE U.S. Trust LLC, as the subsidiary is known, still needs regulatory approval from the Federal Reserve.

Dec. 15 (Bloomberg) -- Credit-default swap clearing would become mandatory under legislation slated to be introduced next month by House of Representatives Agriculture Committee Chairman Collin Peterson.

Peterson of Minnesota, the Democratic chairman of the committee, said in an interview today he had Republican support to proceed with a comprehensive bill. The committee oversees the Commodity Futures Trading Commission and the U.S. futures exchanges it regulates.

“Right now my instinct is to move ahead and put a comprehensive bill together,” Peterson said in the interview. “My goal is to try to move this in January in the committee.”
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Peterson’s plan echoes a call by CFTC Commissioner Bart Chilton, who said last week that CDS clearing in the U.S. should be required.
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Peterson’s counterpart in Congress, Senate Agriculture Committee Chairman Tom Harkin, a Democrat from Iowa, last month introduced legislation that would force all over-the-counter trades including credit-default swaps to be traded on an exchange and processed by a clearinghouse. OTC trading in derivatives worldwide was about $684 trillion as of June, according to Bank of International Settlements data.
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Peterson said he’s been in touch with Harkin about moving OTC trades in the U.S. to exchanges such as CME Group Inc. or Intercontinental Exchange Inc.

“This OTC market has to come out in the open,” he said. Still, he said there were details to be worked out.

“One of the things we have to figure out is whether we get specific or if we give the regulators more leeway,” he said. Under the Harkin bill, banks and traders would have one year to move their OTC activity onto exchanges.

“We can move faster than that,” Peterson said today. “We can move this stuff on to exchanges in quicker than a year.”

Dec. 22 (Bloomberg) -- NYSE Euronext’s Liffe derivatives market will begin guaranteeing credit-default swaps traded outside exchanges from today, as bourses respond to demands from regulators to reduce the risk of market failure.

Liffe plans to start clearing contracts based on the European benchmark Markit iTraxx indexes of credit-default swaps through its Bclear administration service, James Barr, a spokesman for the London-based company, said in an interview.

Exchanges in the U.S. and Europe are gearing up to meet regulators’ calls for greater transparency in the $47 trillion unregulated market for credit-default swaps blamed for helping cause the failures of Lehman Brothers Holdings Inc. and American International Group Inc. Chicago-based CME Group Inc. and Intercontinental Exchange Inc. in Atlanta are among companies vying to create clearinghouses to back trades and absorb losses in the event of a dealer default.

Banks, hedge funds and other investors negotiate credit- default swaps privately on the so-called over-the-counter, or OTC, market. Liffe’s Bclear service will allow dealers to agree OTC trades and then use London-based clearinghouse LCH.Clearnet Ltd. to guarantee the transactions by taking the opposite side of every transaction. The clearinghouse will add stability to the market by becoming the buyer to every seller and seller to every buyer.

With thanks to A.Steve for gently reminding me I'm late... again...

http://www.bloomberg.com/apps/news?pid=new...id=aQo9y4zxoeSI

But only indices

an. 15 (Bloomberg) -- Intercontinental Exchange Inc., the second-largest U.S. futures market, is emerging as the leading candidate to run a clearinghouse for the $29 trillion market for credit-default swaps.
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ICE Chief Executive Officer Jeffrey Sprecher built his company with the backing of investment banks Goldman Sachs and Morgan Stanley. Now he’s planning to purchase Clearing Corp., the former clearinghouse for the Chicago Board of Trade, which is owned by New York-based Goldman Sachs, Morgan Stanley, JPMorgan, Citigroup Inc., Merrill Lynch & Co., Bank of America Corp. in Charlotte, North Carolina, Deutsche Bank AG in Frankfurt and Credit Suisse Group AG and UBS of Zurich.

The nine banks that own Clearing Corp. agreed to move their credit-default swap trading to the ICE U.S. Trust clearinghouse, Sprecher, 53, said on Dec. 10 at a Goldman Sachs investor forum in New York.

“If we were trading broccoli, we’d affiliate ourselves with agribusiness,” Sprecher said in an interview last month.
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CME Group, which traces its roots to 1848, says it’s premature to declare a winner in credit-default swaps clearing.

“This is way too soon to make any pronouncements about what will happen competitively in the market,” CEO Craig Donohue, 47, said last month in an interview. “You have two very different proposals out there. Many of the dealers we’re talking to very much want to keep their options open to participate on more than one platform.”
:
ICE’s acquisition of New York-based credit-default swaps broker Creditex Group Inc. last year and an agreement with London-based index owner Markit Group Ltd. also gave the company access to the two firms that administer auctions used to determine the price on which most of the contracts are settled after an underlying company defaults.

“Markit and Creditex -- that really gives them people who understand how that product is marketed, how it’s traded and how they’re valued,” said John Jay, a senior analyst at financial services consulting firm Aite Group LLC in Boston. “That’s a very key thing.”

Jan. 29 (Bloomberg) -- Draft legislation that would change how over-the-counter derivatives are regulated might prohibit most trading in the $29 trillion credit-default swap market.

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.

“This would basically kill the single-name CDS market,” said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. “Given the small size of many issuers’ bonds outstanding, this would make it practically impossible for the CDS market to exist.”

U.S. regulators and politicians are stepping up pressure on banks to use clearinghouses and agree to increased oversight of the OTC markets to improve transparency amid the credit crisis. Bad bets on credit-default swaps led to the U.S. takeover of American International Group Inc. in September.

80 Percent

As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bonds, according to Eric Dinallo, superintendent of the New York Department of Insurance. Dinallo last year proposed outlawing so-called “naked” credit-default swap trading. He shelved the proposal in November because of progress by federal regulators on broader oversight of the market.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

Proposals that would impair the credit-default swaps market “are likely to prove counterproductive to efforts to promote lending and return the credit markets to a healthy, functioning state,” said Greg Zerzan, the counsel and head of global regulatory policy at the International Swaps and Derivatives Association, which represents participants in the privately negotiated derivatives industry.

“This is a bad idea,” said Robert Webb, a finance professor at the University of Virginia and a former CME trader. “It is reminiscent of the opposition in the 19th Century to futures trading in the belief that speculators were controlling the market and driving agricultural prices down.”

European Reaction

European Union Financial Services Commissioner Charlie McCreevy said today he wouldn’t support a ban on trading credit- default swaps without owning the underlying bonds. Speaking in an interview at the World Economic Forum in Davos, Switzerland, McCreevy also said he favored creating a clearinghouse for OTC derivatives.

Forcing interest-rate swaps and credit-default swaps through a clearinghouse, which would establish prices for the privately traded contracts, may reduce how much banks are able to make from them.

As much as 40 percent of profit at Goldman Sachs Group Inc. and Morgan Stanley comes from OTC derivatives trading, according to CreditSights Inc. Estimating the new income that exchanges such as CME Group Inc. could earn from processing the OTC trades is difficult because clearing fees and volumes aren’t known yet, said Bruce Weber, a finance professor at the London Business School.

JPMorgan’s Holdings

JPMorgan Chase & Co. held $87.7 trillion of derivatives as of Sept. 30, more than twice as much as the next largest holder, Bank of America Corp., which had $38.7 trillion, according to data from the Office of the Comptroller of the Currency. Of the holdings at New York-based JPMorgan, 96 percent were in the OTC market, compared with 94 percent for Bank of America.

The largest positions at JPMorgan and Bank of America, based in Charlotte, North Carolina, were in interest-rate swaps. Banks enter into interest-rate swaps with clients such as cities or hospitals that sold bonds and seek protection against adverse moves in interest rates. They also hedge their exposure to rates in the inter-dealer market.

The OCC data only included U.S. commercial banks, so Morgan Stanley and Goldman Sachs Group Inc. weren’t listed at the time. Both New York-based investment banks converted to banks regulated by the Federal Reserve on Sept. 21.

Provision for Exemption

A provision in Peterson’s bill, which will be discussed in hearings next week, allows for the U.S. Commodity Futures Trading Commission to exempt certain OTC contracts that are too customized or don’t trade frequently enough to be cleared.

Funded by its members, a clearinghouse adds stability to markets by becoming the buyer to every seller and the seller to every buyer.

The standardization necessary to process a contract in a clearinghouse may harm the market and drive the trading overseas, Weber said.

“It’s a big deal because the OTC market has developed almost as an alternative to the exchange market with its clearinghouses,” he said. “It would be advantageous for places like London, Hong Kong or Singapore where OTC trading wouldn’t have that kind of restriction.”

Weber said that if price transparency is what Chairman Peterson wants, it can be achieved in other ways, such as putting OTC derivative prices on a system such as Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Peterson’s draft bill would also authorize a study by the CFTC to determine if OTC trading influences prices on exchange- traded contracts such as oil. If the commission found such an influence it would be authorized to set limits on the size of positions held by OTC traders.

Wow. This bear sure does have a sore head...

http://www.bloomberg.com/apps/news?pid=206...id=aQwtZAoNG4GY

Feb. 19 (Bloomberg) -- Dealers of credit-default swaps in Europe agreed to use a clearinghouse in the European Union to guarantee derivatives as they seek to end a threat by regulators to legislate the privately traded market.

Nine banks and brokers including Deutsche Bank AG, JPMorgan Chase & Co. and Barclays Plc committed to start using one or more clearinghouses within the 27-nation region by the end of July, barring delays from unresolved matters, according to a letter from the dealers to European Union Financial Services Commissioner Charlie McCreevy. Funded by its members, a clearinghouse adds stability to markets by becoming the buyer to every seller and the seller to every buyer.

McCreevy welcomed the agreement to meet his demands for clearing of “systemically relevant” credit-default swaps. In a statement today released today in Brussels, he called for talks to resolve the remaining issues, which include an agreement on a framework for regulating the market in Europe. The banks also need to agree on new terms for the derivatives contracts that would make them interchangeable, a necessity for clearinghouses.

“Central clearing of CDS is particularly urgent to restore market confidence,” McCreevy said. “Given the size of derivatives markets I am looking whether other measures might be necessary to make sure they are adequately supervised and do not pose unnecessary risks to financial markets.”

Dealers Under Pressure

Dealers are under pressure to process credit-default swaps trades through a central counterparty in the U.S. and Europe after last year’s failure of Lehman Brothers Holdings Inc., which was among the largest traders of the contracts.

While the U.S. led the push toward clearing last year, the agreement announced today may help European regulators keep the market’s infrastructure from shifting to the U.S., said Brian Yelvington, an analyst at CreditSights Inc. in New York.

“They’ve definitely taken a firmer regulatory stance and outlined what they wanted,” said Yelvington, a former credit- default swap trader.

The Federal Reserve Bank of New York last year encouraged dealers to commit to processing trades through one of four clearing entities being created by exchanges. The plans in the U.S., though, have been held up by regulatory approvals after the Fed in October said they hoped to have at least one clearinghouse guaranteeing trades by the end of 2008.

New York Fed spokesman Calvin Mitchell declined to comment.

Pushing Dealers

After a tentative December agreement between the dealers and European regulators broke down, McCreevy said he would push for a law forcing dealers to conduct clearing in the EU, under the supervision of regulators, if the banks didn’t do it voluntarily. With his backing, lawmakers have proposed that banks set aside extra money for credit derivatives that aren’t safeguarded in a clearinghouse.

While the status of that proposal is up to the European Parliament and the national governments, the dealers satisfied the European Commission’s demands outlined in October, McCreevy spokesman Oliver Drewes told reporters today in Brussels.

“It’s about having the objective as soon as possible,” Drewes said. “This is the soonest way to have it.”

The dealers agreed to begin meeting with regulators every three or four weeks starting in March and will hold regular meetings with prospective clearinghouses and other key players to resolve the outstanding issues “which would otherwise be an impediment” to clearing, according to the letter. Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc, Morgan Stanley and UBS AG were the other dealers that signed the letter.

Credit-Crisis Worry

European and U.S. regulators have sought to increase oversight of the market amid claims that bets made with the contracts amplified the credit crisis. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if the borrower defaults.

Bets made through credit-defaults swaps helped push American International Group Inc., once the world’s biggest insurer, to the brink of bankruptcy before the U.S. government bailed it out with a $150 billion rescue package. New York-based AIG’s troubled trades were largely linked to hard-to-value mortgage debt securities, rather than the actively traded contracts that are likely to be backed by clearinghouses.

Atlanta-based Intercontinental Exchange Inc., Chicago-based CME Group Inc., Eurex AG and NYSE Euronext’s Liffe derivatives market are competing to clear credit-default swaps.

Resistance from banks and authorities in continental Europe has held up efforts to clear European trades, NYSE Euronext Chief Executive Officer Duncan Niederauer said last month in Davos, Switzerland. NYSE Euronext’s Liffe derivatives exchange in London started offering credit swaps clearing in December through LCH.Clearnet Group Ltd.

‘Very Legitimate’

“The solution we’ve established for a very legitimate clearinghouse is somehow not acceptable to the continent because it’s not in the euro zone,” Niederauer told the lunch gathering hosted by Credit Suisse Group AG on Jan. 30. “It all seems like nonsense to me. We should think about trying to solve the problem, not playing politics here.”

LCH.Clearnet said last week it will start offering clearing through a Paris-based unit to meet European regulators’ demands.

France’s central bank urged the creation of a euro-zone clearinghouse to prevent the business from going to the U.S. or the U.K., the Financial Times reported today, citing a Banque de France report.

In the U.S., nine dealers in October backed the plans by Intercontinental Exchange, or ICE, which is acquiring dealer- owned Clearing Corp. The ICE clearinghouse still needs the approval of the Federal Reserve Bank of New York and other regulators.

IM IN THE CDS MARKET AND THIS SUCKS THE BIG ONE.

March 5 (Bloomberg) -- Intercontinental Exchange Inc.’s bid to become the top U.S. guarantor of credit-default swap trades moved a step closer after the Federal Reserve approved its proposal, leaving the Securities and Exchange Commission as the futures market’s final regulatory hurdle.
:
The Commodity Futures Trading Commission, Federal Reserve Board and SEC signed a memorandum of understanding in November to share regulatory information. Under the plan, the CFTC would oversee the CME Group effort, the Fed would oversee the Intercontinental proposal and the SEC would reserve the right to regulate clearing at a later date.

The CFTC granted CME Group the go-ahead for credit-default swap clearing on Dec. 23. Intercontinental’s plan has the backing of eight major dealers including JPMorgan Chase & Co. and UBS AG.

One issue holding up the Intercontinental approval process was designing a system to price credit-default swaps that trade infrequently. This so-called marking to market has likely been solved, though it hasn’t been made public, BMO Capital Markets analyst Mike Vinciquerra wrote in a note to clients today.
:
Other proposals to clear credit-default swaps have been made by NYSE Euronext, Eurex AG and LCH.Clearnet Ltd. Only the NYSE effort is available now for clearing after starting on Dec. 22. As of Jan. 30, no swaps had been cleared by the NYSE’s London- based derivatives exchange, according to NYSE CEO Duncan Niederauer.
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Members of the Intercontinental clearinghouse will have to have a net worth of at least $5 billion and a credit rating of A or better to clear their credit-default swap trades, the Fed said in its approval yesterday. Each clearing member will have to contribute at least $20 million to a guarantee fund, which is used in case of a trader default.

Intercontinental Chief Executive Officer Jeff Sprecher has said he eventually wants the guarantee fund to be in the range of $1 billion.

The Fed decision came two days after the Federal Trade Commission and the Justice Department granted approval to Intercontinental to buy Clearing Corp., a Chicago-based clearinghouse owned by eight major dealers in the credit-default swap market. That deal gives Intercontinental the support of the market’s largest users.
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Intercontinental said yesterday that it expects to close the Clearing Corp. purchase within a week. The terms of the acquisition haven’t been disclosed.