We have reported previously on moves in the United States to regulate the credit default swaps (CDS) market (our most recent post can be found by clicking here.

On 19 February the International Swaps and Derivatives Association (ISDA) announced that nine of the leading dealer firms in the CDS industry have signed a letter to Charlie McCreevy, the European Commissioner for the internal market and services, confirming their commitment to an EU-based central clearing house for eligible EU CDS contracts by the end of July 2009.

The letter commits its signatories to working closely with infrastructure providers, regulators and the European Commission to resolve outstanding technical, legal, regulatory and practical issues.

This commitment follows threats by Mr McCreevy to mandate a central counterparty through European legislation, and a proposed amendment to the Capital Requirements Directive proposed by the European Parliament which called on the European Commission to put forward appropriate legislative proposals to regulate CDS and require processing through a central clearing house.

Separately, the European Banking Federation said that it had no preference as to the location of the new clearing house, or houses, but expressed the desire that they should be “safe, sound, efficient and reliable”.

A number of clearing house operators, including the London arm of IntercontinentalExchange, London-based LCH Clearnet and the German/Swiss-owned Eurex derivative exchange are understood to be in talks with key market participants.