Another interesting FT article (Wednesday) discusses the calls for OTC derivatives clearing. The issue is apparently discussed in the US congress, which I find interesting (who would have thought congressmen and senators would ever be discussing credit derivatives clearing houses....). Of course, what it all boils down to is the issue of counterparty risk. As I stressed a month ago (17/9 AIG+CDS=SOS) I thought the collapse of AIG would be the start (since then we have seen a lot of counterparties collapsing or being bailed out) of the new era where counterparty risk would take center stage. That’s what seems to be going on behind the curtains, and a campaign is elegedly trying to persuade exchanges and banks involved in OTC trading to come up with plans on how to create a central clearing counterparty for the CDS market.
About a year ago I wrote ....I think the current turmoil in credit should strongly support, if anything, more contracts going to exchanges rather than the opposite (December 16, 2007). We are not there yet but I still think a lot points in that direction. For me at least, the developments in this corner of the market will be interesting to follow.