Derivatives head for clearing
After the collapse of Lehman Brothers and the bailout of AIG, financial service regulators are searching for a way to bring order to the over-the-counter derivatives market. Top of the list are actions aimed at credit default swaps. US Editor Kris Devasabai reports
The establishment of central clearing houses for the credit default swaps (CDS) market promises to deliver significant benefits to hedge funds in the long run.
Central clearing and the eventual move to an exchange environment is expected to cut the cost of trading for hedge funds, while the management of counterparty risk at the clearing house may lead to a reduction in the amount of collateral that needs to be set aside with prime brokers to cover positions.
However, resistance from the major
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