Credit Swap Clearinghouse to Be Running by Year-End (Update1)

[Joanne98]

By Shannon D. Harrington

Nov. 14 (Bloomberg) -- U.S. regulators said at least one central clearinghouse for the $33 trillion credit-default swap market will be running by year-end after they agreed on a plan to regulate the entities.

The Federal Reserve, Commodity Futures Trading Commission and Securities and Exchange Commission signed an accord they said will provide consistent oversight of credit-default swaps, which are unregulated contracts that are traded privately.

The regulators and the U.S. Treasury are pressing the industry to improve transparency and create a clearinghouse that would back trades and absorb losses should a dealer fail. They stepped up the efforts after the bankruptcy of Lehman Brothers Holdings Inc. in September and the near-collapse of American International Group Inc. The group laid out guidelines they said would lessen the risk of systemic losses from privately negotiated derivatives.

``Bringing transparency to this market is vitally important,'' SEC Chairman Christopher Cox said in a statement today. ``The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis.''

The memorandum of understanding between the Fed, the CFTC and the SEC ``establishes a framework for consultation and information sharing'' for the new entities, according to the statement by the President's Working Group on Financial Markets released.

To contact the reporters on this story: Shannon D. Harrington in New York at [e-mail];

Last Updated: November 14, 2008 10:19 EST

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