CDS exchange

The FT looks at the conflicts involved in the creation of a central clearing facility for CDS.

Mark Yallop, chief operating officer of Icap (a shareholder in TCC), says: “The dealers have a choice about where they clear their OTC credit default swaps. But it probably isn’t in their longer-term interests for these to be cleared on an exchange-owned clearing platform because that exchange could, potentially, use the open interest thereby created in its clearing house associated with the dealers’ OTC contracts as a basis for launching exchange-traded CDS contracts. Such a development would undermine dealers’ OTC franchises.