Saturday, April 30, 2011
European Regulators wants a Justification on Credit Default Swaps
So there are two investigations that have been put up by the European Regulators.
The next set of investigation involves 9 banks, that play a major role in a procedure called clearing that regulators in the United States and Europe have promoted for several years as a better way to manage the risks posed by derivatives.
In return for partnering with the Intercontinental Exchange, a publicly traded company, the banks got a favorable deal with ICE that persists today. Not only did they get a major say in ICE’s rules on derivatives, the banks also share in ICE’s profits from clearing and enjoy a cap on the fees they pay for clearing.
The European Commission said the deal between ICE and the nine banks might be unfair to other players in the market. In particular, the commission criticized the cap on clearing fees. The banks are not obligated to pass on the benefits of the caps to their customers and could use part of their savings to undercut bids from new competitors.
No wonder all of these banks have already under spotlight for misleading clients and causing the severe crisis that even made Greece a victim or the game.
I should also mention that in 2010, European Regulators did focused on understand what these CDS are and who operates in all of these markets, the major players and the banks involved in the production of these weapons of mass destruction. So, we can think on what new findings can be brought now in relation to these derivatives, that now constitute more than $600 trillion in market cap