The U.S. Commodity Futures Trading Commission (CFTC) will meet this Thursday to decide which swaps will require clearing at clearinghouses owned by CME Group Inc. and ICE.
The move to central clearing, where clearinghouses take collateral, is mean to reduce systemic risk from default in the $640 trillion swaps market.
“Central clearing equalizes access to the market and democratizes it by eliminating the need for market participants to individually determine counterparty credit risk,” said CFTC Chairman Gary Gensler earlier this month.
The meeting this week will help determine which kinds of swaps will require clearing. Earlier this year, in July, the CFTC determined that interest-rate and credit swaps would be included in the new rule. Last week, the U.S. Treasury exempted foreign exchange swaps from clearing rules.
CFTC commissioner Bart Chilton has been open about the difficulty of calibrating swaps regulation. The CFTC has been criticized, too, from both sides of the aisle for tardiness.
“In this instance, while we had a robust swaps market in the U.S., prior to Dodd-Frank, we did not have a system making the platforms registered entities. Therefore, it’s been a challenge to design the right rules, to carry out the intent of Congress and to ensure that systems intended to be covered by the law are not over- or under-regulated,” Chilton said at a conference earlier this month.
Last week, the CFTC issued a no-action letter that established a common date by which all swap dealers must register. The CFTC issued the common date after months of criticism from industry participants. Also, the agency did not want to cause compliance issues for firms that were yet to report.
“The public dissemination of data reported by one, or even a few, early registrants may facilitate the identification of parties to the swaps for which data has been reported,” the CFTC said in its no-action letter.