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III. The Regulation of Complex Financial Products
Abstract
The subprime crisis focused much attention on credit default swaps (CDS) and the role they played in the failure of the American International Group Inc. (AIG). The bailout of AIG by the U.S. government was unprecedented in size and scope, and the amount of the bill to the taxpayers for that and other failures is yet to be tallied. The U.S. government, and those in Europe, are seeking to regulate the previously unregulated CDS market. To date, that effort has focused on the creation of central clearinghouses for CDS, which, it is hoped, will lead to greater transparency.1 The development of such clearinghouses is supported by the derivatives industry, and several clearinghouses have already been formed to carry out this activity. “Legacy” swaps are being registered with those clearinghouses and plans are underway for listing new originations. More troubling to the industry is the Obama administration’s request for broader, more intrusive, indeed pervasive, regulation of CDS by the Securities and Exchange Commission (SEC) and other over-the-counter (OTC) derivatives by the Commodity Futures Trading Commission (CFTC).2
Restoring Financial Stability--The Legal Response
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Front Matter
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Back Matter
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View in gallery
Exhibit 5 .Credit Default Swaps: Global Outstanding Amounts vs. Amounts Held by Japanese Market Makers
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