Former CFTC counsel urges clearing rethink

Author: Danielle Myles | Published: 28 Jul 2011

The Commodities Futures Trading Commission’s (CFTC) latest swaps proposal has attorneys puzzled as to its purpose. As the clearing regime develops, potential systemic risks posed by clearinghouses have moved to the forefront of debate.

On Tuesday July 19 the CFTC re-proposed the rule which gives clearinghouses more time to decide whether they accept or reject a trade for clearing.

Its initial March proposal required the decision to be made immediately. Now the CFTC suggests clearinghouses decide ‘as quickly as technologically practicable if fully automated systems were used’, which it estimates to be milliseconds, seconds, or at most a few minutes.

The reason cited for the rewrite is to allow clearinghouses to aggregate the risks of trades to ensure they are within participants’ credit limits. But observers say that only clearing members with good credit would be part of the clearinghouse, and so long as their guarantee...