The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) staffs held a public roundtable on October 22, 2010, to discuss issues related to rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act related to the clearing of credit default swaps. Participants included academics and representatives from banks and clearing houses.

The discussion focused on the following issues:

Products and Processing

  • Characteristics of credit derivatives, including corporate index and single-name CDS and other credit derivatives.
  • Standardization, eligibility for clearing and pricing issues.
  • Operational issues, including credit event processing.
  • Reporting to trade repositories.

Clearing Initiatives

  • Current products offered for clearing.
  • Prospective products offered for clearing.
  • Risk management practices, including access to price information, clearing member default management and management of jump-to-default risk.
  • Effect of clearing mandates.

Clearing Initiatives

  • Current products offered for clearing.
  • Prospective products offered for clearing.
  • Risk management practices, including access to price information, clearing member default management and management of jump-to-default risk.
  • Effect of clearing mandates.

Common themes throughout the discussion included improving liquidity by reducing barriers to entry (but avoiding a race to the bottom), maximizing transparency in the corporate governance of clearing houses, and managing risk. In particular, Craig Pirrong, a professor of finance at the University of Houston, commended regulating agencies to consider the “correlation risk of the market moving broadly in the same direction” in rulemaking regarding margin requirements.