Release: 5592-08
For Release: December 23, 2008

CFTC Announces That CME Has Certified a Proposal to Clear Credit Default Swaps

Washington, DC – The Commodity Futures Trading Commission (CFTC) today announced that the Chicago Mercantile Exchange Inc. (CME) has certified plans to provide clearing services for certain credit default swap contracts (CDS) through CME’s clearinghouse, a registered derivatives clearing organization (DCO). CME has certified that this initiative will comply with the DCO Core Principles enumerated in Section 5b(c)(2) of the Commodity Exchange Act and Part 39 of the CFTC’s regulations.

Prior to CME’s certification, CFTC staff reviewed CME’s plans to clear credit default swaps, including CME’s planned risk management procedures, and notified CME that the CFTC staff would not object to the certification. Given the unique regulatory posture of credit default swaps, the CFTC, the Board of Governors of the Federal Reserve, and the Securities and Exchange Commission (SEC) entered into a Memorandum of Understanding (MOU) on November 13, 2008, to establish a framework for consultation and information sharing on issues related to CDS central counterparties, facilitate the regulatory approval process, and promote more consistent regulatory oversight. Pursuant to the MOU, the CFTC coordinated and consulted with the staffs of the Federal Reserve and the SEC in reviewing the CME’s plans to clear credit default swap contracts. Based upon this review, the Federal Reserve staff expressed its support for the CFTC staff’s decision not to object to the CME’s certification.

Acting Chairman Walter Lukken said: “The advent of clearing solutions for the credit default swap market will benefit the financial system significantly by enhancing transparency, reducing counterparty credit risk, and improving the quantity and quality of information provided to federal regulators.”

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Last Updated: December 23, 2008