CDS bill moves forward.
Last month I mentioned Congress's apparent determination to
regulate credit default swaps (CDS), the most politically volatile
derivative because of its role in the AIG debacle. Congressional
regulation of CDS could have some significant impact on corporate sales
of debt and company use of those swaps to protect themselves from
defaulting suppliers. The House Agriculture Committee took the first
step toward regulation on February 13 when it passed a bill (H.R. 977)
that would require all CDS traded outside an exchange to be processed
through a central clearinghouse regulated by the Commodity Futures
Trading Commission (CFTC) or the Securities & Exchange Commission
(SEC). The CFTC or SEC will also be able to suspend trading in CDS with
the President's approval, but only in situations where the SEC has
suspended short-selling in the underlying securities.