Statement of Support on Proposed Clearing Requirement Determination
Chairman Gary Gensler
July 24, 2012
I support the proposal to require certain interest rate swaps and credit default swap (CDS) indices to be cleared as provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
For over a century, through good times and bad, central clearing in the futures market has lowered risk to the broader public. Dodd-Frank financial reform brings this effective model to the swaps market. One of the primary benefits of swaps market reform is that standard swaps between financial firms will move into central clearing, which will significantly lower the risks of the highly interconnected financial system.
The Dodd-Frank Act requires the Commission to determine whether a swap is required to be cleared. For purposes of this first set of determinations, the Commission has looked to swaps that are currently cleared based upon submissions from eight derivatives clearing organizations (DCOs).
This first proposed clearing determination would require that swaps within identified classes be cleared by a DCO. This first determination includes interest rate swaps in four currencies, as well as five CDS indices. The proposal addresses swaps that five DCOs are already clearing, including standard interest rate swaps in U.S. dollars, euros, British pounds and Japanese yen, as well as a number of CDS indices, including North American and European corporate names. Subsequently, the Commission will consider other swaps, such as agricultural, energy and equity indices.
I believe that the Commission’s proposed determination for each class satisfies the five factors provided for by Congress in the Dodd-Frank Act, including the first factor that addresses outstanding exposures, liquidity and pricing data.
Under the proposal, a DCO would be required to post on its website a list of all swaps it will accept for clearing and must indicate which swaps the Commission had determined are required to be cleared.
I look forward to receiving public input on this proposed rule.
Last Updated: July 24, 2012