Late last week, theSecurities and Exchange Commission (SEC) adopted amendments to interim final temporary rules that provide exemptions for certain credit default swaps (CDS) in order to facilitate the operation of one or more central counterparties (CCPs) for those CDSs. The amendments extend the expiration of the existing interim final temporary rules from September 25, 2009, to November 30, 2010.

Interim final temporary Rule 239T under the Securities Act of 1933, interim final temporary Rules 12a-10T and 12h-1(h)T under the Securities Exchange Act of 1934 and interim final temporary Rule 4d-11T under the Trust Indenture Act of 1939 (the “Interim Final Temporary Rules”), which were adopted in January 2009, were intended to “facilitate the operation of one or more CCPs that clear and settle CDS transactions while enabling [the SEC] to provide oversight to the CDS market.” Since the adoption of the Interim Final Temporary Rules, ICE U.S. Trust LLC has begun clearing CDS transactions in the United States and four others have been granted exemptive orders to do so by the SEC. ICE Clear Europe Limited and Eurex Clearing AG have begun clearing CDS transactions in Europe. Members of Congress have introduced several legislative initiatives dealing with the regulation of derivatives in general, and CDSs specifically, which have been recommended by the Treasury Department, and the Committee on Payment and Settlement Systems and the Technical Committee of the International Organization of Securities Commissions established a working group to evaluate the application of recommendations made by both groups for CCPs with respect to OTC derivatives.

The SEC is extending the expiration date of the Interim Final Temporary Rules in the belief that the extension will enable other CCPs to start clearing and settling CDS transactions in the manner contemplated by the SEC and will give the SEC more time to consider the Interim Final Temporary Rules and their effects on the CDS market and participants in that market. The extension also comes in light of the financial regulatory reforms proposed to Congress by Department of the Treasury and several bills concerning the regulation of derivatives and the derivatives markets that have been introduced to Congress.