New York’s change of heart comes as the initiative to regulate CDS Contracts on a federal level is gaining momentum. Earlier in the day, Senator Tom Harkin (D-Iowa) announced the introduction of legislation that would require CDS Contracts and other derivatives to be traded on a regulated futures exchange under the jurisdiction of the Commodities Futures Trading Commission. We will update this post with a copy of the legislation once it becomes available.
In response to the proposed legislation and the federal government’s larger plans to regulate CDS Contracts, Superintendent Dinallo stated, “As this process unfolds during the next Congress, my office will be actively following and assisting the federal government’s efforts,” adding that “New York will delay indefinitely” its plan to regulate the CDS Contract market.
In announcing the federal bill, Sen. Harkin noted that “every swap, every derivative in the future will have to be traded on a regulated exchange,” creating the transparency that critics of the market for CDS Contracts argue is currently lacking. “Everyone will know exactly what’s going on,” Sen. Harkin said.
In addition to the proposed federal legislation, it has been reported that a number of different federal regulators are in discussions to create a federal regulatory framework which would establish a clearinghouse and central counterparty for CDS Contracts in an effort to stabilize the volatile derivatives market. Either way, it appears that the days of the unregulated CDS Contract market are drawing to a close.
We continue to follow this issue and post further updates on InsureReinsure.com.