At this point, a regulated exchange to trade credit defaul swaps won’t do a whole lot to solve the big mess — companies writing coverage they weren’t ready to pay out — but a little more transparency and consistent pricing data should be helpful at the margins. In an effort to speed the creation of such a market, the SEC has told various exchanges that they’ll be exempt from certain regulations:
Reuters: The SEC’s plan is aimed at speeding up the creation of one or more central counterparties for credit default swaps, which are used to insure against bond default risk.
A central counterparty would give regulators and the public a glimpse into an extremely opaque part of the derivatives market, blamed for contributing to the financial crisis. It would also help standardize the criteria to evaluate risk exposure and free up collateral.
According to the SEC document, central counterparties or central clearinghouses will be eligible for exemption from registration requirements if they meet certain conditions.
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