In what the CFTC called a “historic change” for the swaps market, beginning March 11, swap dealers and private fund participants in the swaps market have started complying with mandatory clearing of some credit default swaps.
“One of the most significant Dodd-Frank reforms begins implementation…” CFTC Chairman Gary Gensler said on Monday, according to Automated Trader. “Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers.”
Under Dodd-Frank, the CFTC must determine whether a swap must be cleared by an agency-initiated review or a review submission from a derivatives clearing organization. The requirement applies to all swaps entered into on March 11 onwards.
Market participants exempt from the requirements under section 2(h)(7) of the Commodity Exchange Act are not required to comply with reporting provisions until Sept. 9.
“This week’s implementation of mandatory clearing continues the process of implementing key goals of the Dodd-Frank Act,” Gensler said, Automated Trader reports.
Under CFTC rules finished during the beginning of last year, 71 swap dealers are registered, including the largest U.S. and international firms dealing in U.S.-based swaps, as well as 16 institutions referred to as the G16 dealers.
The CFTC is working to finalize rules for swap execution facilities, which would allow market participants to see bid prices and offers before deciding on a transaction, according to Markets Media.