The Securities and Exchange Commission Tuesday approved temporary exemptions allowing London-based LCH.Clearnet Group Ltd. to operate as a central counterparty for credit default swaps.
"Today's announcement is an important step in our efforts to add transparency and structure to the opaque and unregulated multitrillion-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.
“Although more needs to be done in this area legislatively, these actions will shine much-needed light on credit default swaps trading."
The SEC developed these temporary exemptions in close consultation with the board of governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Commodity Futures Trading Commission and the London-based U.K. Financial Services Authority.
The temporary exemptions will facilitate central counterparties such as LCH.Clearnet and certain of their participants to implement centralized clearing quickly, while providing the SEC time to review their operations and evaluate whether registrations or permanent exemptions should be granted in the future.
“The conditions that apply to the exemptions are designed to provide that key investor protections and important elements of SEC oversight apply, while taking into account that applying all the particulars of the securities laws could have the unintended consequence of deterring the prompt establishment and use of a central counterparty,” the regulator said in a statement.
Separately, the Commodity Futures Trading Commission of Washington announced that the Chicago Mercantile Exchange Inc. has certified plans to provide clearing services for certain credit default swap contracts through CME’s clearinghouse, a registered derivatives clearing organization.
“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,” acting chairman Walter Lukken said in a statement.
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