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Finally, Transparency For OTC Derivatives?

Treasury is to make an announcement after the close to establish a regulatory framework for over the counter (OTC) derivatives.

It's about time. These derivatives are exempt from regulation, and they ought not to be.

What are they? We don't have details on the announcement, but it will presumably include interest rate swaps and credit default swaps (CDS).

In an interest rate swap, one party exchanges a stream of interest payments for another party's stream of cash flows. It's one way of reducing exposure or risk.

Credit default swaps allows allows a buyer to purchase protection against the possibility of a default on the debt of a particular company.

We expect they will call for prices to be available on centralized platforms. This is good news for exchanges with clearinghouses--like InterContinental Exchange (ICE) and the Chicago Mercantile Exchange (CME) both of which moved up on the news.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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