The U.S. Commodity Futures Trading Commission (CFTC) said that mandatory clearing of certain index credit default swaps (CDS) and interest rate swaps began today.
The CFTC says that swap dealers, major swap participants, and private funds that are active in the swaps market, are required to begin clearing certain instruments today under the US regulatory reform known as Dodd-Frank. The clearing requirement applies to newly executed swaps, as well as changes in the ownership of a swap.
“One of the most significant Dodd-Frank reforms begins implementation today,” said CFTC chairman, Gary Gensler. “Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers.”
The Dodd-Frank reform requires the CFTC to determine whether a swap is required to be cleared by either a CFTC review or a submission from a clearing agency for the review of a swap, or group, category, type, or class of swap.
“This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act,” Gensler said. “It is an historic change for the markets that will benefit the public and the economy at large.”