The European Central Bank hosted a meeting on Monday with European stakeholders concerning the establishment of central counterparties for credit default swaps (CDS).

Participants in the meeting included the potential providers of such CCPs, their regulators and the main users (dealers and buy-side).

It said that it shares the views of the Financial Stability Forum and of the European Commission on the importance of reducing counterparty risk and of enhancing transparency in OTC derivatives markets, especially in those parts of the market that are of systemic importance (credit derivatives, including credit default swaps).

There are a number of initiatives aiming to achieve these goals through the introduction of centralised clearing solutions for OTC derivatives. The Federal Reserve Bank of New York has been leading this effort in the US.

The ECB said it sees the introduction of CCPs for OTC derivatives as an appropriate solution to tackle these issues because CCPs, by virtue of concentrating outstanding positions in one place, reduce the counterparty risk to which market participants are exposed; increase market integrity, transparency and the availability of information; standardise the criteria for evaluation of exposures; and (free up collateral.

Participants at the meeting underlined the merits of multiple solutions in general and of at least one European solution, it reported. The ECB said it stands ready, in cooperation with the other authorities, to facilitate the effective collective action of the private sector in this regard.

IE