Let's clear the way for CDS

Author: | Published: 1 Oct 2009

Elizabeth Fournier
Staff writer

On September 17, the US bankruptcy court dealing with derivatives contracts linked to Lehman Brothers ruled that parts of the International Swaps and Derivatives Association's (Isda) master agreement were not enforceable. The decision means that companies that did not immediately choose to terminate their contracts with Lehman when it collapsed could be forced to continue payments, despite the lack of an operating counterparty.

When judgments like this are made, and have the potential to affect any company that had agreements with Lehman that could be contested in a US court, it's easy to see why derivatives regulation has been at the forefront of debate in both the US and Europe. Now that the emergency months of knee-jerk bank bailouts and stimulus packages are coming to an end, focus has turned to long-term measures to avoid another economic downturn. The chaos of unwinding unregulated over-the-counter (OTC) derivatives contracts...