Registration Of Security-Based Swap Dealers
@29:55, Stanford professor, Darrell Duffie, explains how clearinghouses may exacerbate the problem of CDS.
Section 764(a) of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Securities and Exchange Commission [SEC] to issue rules to provide for the registration of security-based swap dealers. Swap dealers will be subject to capital and margin requirements in an effort to lower risk, and dealers will be required to register with the SEC in an effort to regulate swap dealers.
Credit default swaps [CDS] are insurance policies that are used as a hedge against risky bonds. Prior to the near-collapse of American International Group [AIG], there was no clearing house, which is an intermediary between buyers and sellers. The purpose of a clearing house is to ensure that trades are settled and margin requirements are met, and Title VIII of the Dodd-Frank Act gives the Board of Governors of the Federal Reserve new authority with respect to the risk management of clearing agencies for CDS.
