Yesterday, European Union (EU) Internal Market and Services Commissioner Charlie McCreevy announced that credit default swaps (CDS) relating to European entities and indices based on these entities began clearing through central counterparties (CCPs) regulated in the EU. Commissioner McCreevy stated that “clearing through central counterparties is key to improving risk management and to increasing the stability of the financial system.” In response to the Commissioner’s repeated calls, specifically in October 2008 and in February 2009, for central clearing of CDS, ten major dealers committed to clear CDS on European reference entities, and indices based on these entities, through one or more central counterparties (CCPs) established and regulated in the EU by July 31, 2009.

Two European CCPs, ICE Clear and Eurex Clearing AG, have already obtained the necessary regulatory approvals and are now offering their services while a third, LCH.Clearnet SA, is expected to follow by year end. Meanwhile, the Internal Market and Services Commission will monitor the migration of CDS onto CCPs and take this into consideration when for formulating its policies for over-the-counter derivatives in general.