In a speech yesterday at the Sandler O’Neill Global Exchange & Brokerage Conference, CFTC Chairman Gary Gensler spoke about the commission’s progress in implementing new rules mandated by the Dodd-Frank Act, while providing details on the gradual implementation of central clearing for over-the-counter (OTC) derivatives.
Gensler particularly emphasized the fact that central clearing lowers systemic risk by reducing the possibility that an individual clearing member’s default will cause a chain reaction. Central counterparties (CCPs) stand between buyers and sellers in order to guarantee both sides’ positions should one of them default. The commission latest steps to finalize central clearing rules include a rule, set to go into effect in November, that will require central counterparties to collect margin on a gross basis.
Gensler also announced that central clearing will be implemented first for credit index and interest rate swaps first. “Swaps market reform also benefits markets by increasing the use of central clearing, which promotes the financial integrity of markets and lowers the risks of the highly interconnected financial system,” Gensler said.
