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The role of central counterparties is being given increased prominence in the over-the-counter markets, with regulators calling for clearing houses for credit derivatives. But how do central counterparties manage their risks? By Clive Davidson
The push for central clearing of credit default swaps (CDSs) has been gathering momentum since the loss of Bear Stearns last March, and picked up pace in September when Lehman Brothers filed for Chapter 11 bankruptcy protection. The Federal Reserve Bank of New York has led the campaign for CDS clearing, while the European Commission has also stated its intention to set up a separate central counterparty in Europe. One clearing platform has already been launched for European CDS index trades and
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