How European CDS regulation will work

Author: | Published: 24 Mar 2010

The contents of four European directives will determine the future of credit default swaps (CDS) in Europe. Lawyers and industry representatives are relieved that the focus is on transparency rather than bans, but still uncertain what the detail will mean.

Proposals are expected for the newest directive, known as the European Markets Infrastructure Legislation (Emil), in June or July.

Emil is expected to take form as a regulation rather than a directive, which means there is no scope for member states to interpret it differently. “A regulation raises the stakes and pins down details,” said Richard Metcalfe, head of European Policy at Isda in an interview with IFLR. “Regulations are used rarely, when an issue is felt to be particularly serious or urgent.”

Emil will focus on how the newly created European Markets Supervisory Authority (Esma) will regulate central counterparties (CCPs). Concerns have been raised over...