NY Fed Calls for Meeting of Credit Derivative Players

The Federal Reserve Bank of New York said on Wednesday it has summoned participants in the $55 trillion credit derivative market to a meeting on Friday, which sources say will focus on determining which clearing house the market will support.

Calls for regulation and centralized clearing of credit default swap trades has gathered steam in the wake of Lehman Brothers' failure last month.

Critics charge that credit default swaps are central to the spreading fears in the markets and pose systemic risks, as the private nature of the market makes it impossible to know the size of a counterparty's exposures and where they are distributed.

A central clearinghouse will remove the risk of a large counterparty failure, however, with several efforts under way, and the Fed wants major market participants to select which they will support, sources familiar with the meeting said.

The Chicago Mercantile Exchange, or CME Group, and Citadel Investment Group unveiled plans on Tuesday for an electronic exchange for credit default swaps, which they said would be integrated with a central clearinghouse.

The move came as dealer-owned Clearing affirmed its plans to launch a clearing house by year-end. NYSE Euronext's Liffe unit has also said it will launch its BClear OTC facility in the fourth quarter.

U.S. business television channel CNBC reported on Monday the Fed was planning talks with the CME and the Intercontinental Exchange, or ICE, on the creation of a CDS exchange

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