US Swap Clearing Officially Begins

Swap dealers, major swap participants and private funds must now clear interest-rate and credit default swaps, with the five classes listed here. Only new trades, or a change in ownership of the swap, triggers the requirement to clear, and non-financial companies using derivatives to hedge commercial risk are not subject to the regulation.

The establishment of central clearing counterparties (CCPs) is a global mandate, designed to mitigate systemic risk in the over-the-counter (OTC) markets. In the US, the Dodd-Frank Act provides the legal basis for the reform, and modifies the previous Commodity Exchange Act to require certain derivatives to clear.

"One of the most significant Dodd-Frank reforms begins implementation today," says Gary Gensler, chairman at the CFTC. "Central clearing lowers the risk of the highly interconnected financial system. It promotes competition in and broadens access to the market by eliminating the need for market participants to individually determine counterparty credit risk, as now clearinghouses stand between buyers and sellers."