From the April 01, 2010 issue of Futures Magazine • Subscribe!

FHFA won't wait for OTC clearing rules

Commodity Futures Trading Commission Chairman Gary Gensler reiterated his goal of moving over-the-counter derivatives to central clearinghouses while speaking before an audience of futures professionals at the Futures Industry Association’s annual conference in Boca Raton, Fla. At the same conference, Martha Tirinnanzi, chairperson of the clearinghouse working group of the Federal Housing Finance Agency (FHFA), said she will not wait for new rules to mandate clearing before moving the FHFA’s book of OTC interest rates swaps into a clearinghouse.

The FHFA is both the regulator and conservator of the approximately $3 trillion worth of interest rate swaps held by Fannie Mae, Freddie Mac and Federal home loan banks according to Tirinnanzi.
On the panel with Tirinnanzi were representatives of the three clearinghouses competing for that clearing business: CME Group, LCH.Clearnet and International Derivatives Clearing Group (IDCG).

Tirinnanzi said the FHFA will begin clearing OTC swaps within one to two months. “Some banks are in denial as to whether this is going to happen. It is,” she said, adding, “We have been kicking the tires; we successfully shadow cleared with each [clearinghouse].”

Tirinnanzi would not say what clearinghouse FHFA would choose but said they would use more than one. She acknowledged that that would require the competitors to establish cross margining or mutual offset arrangements.

IDCG had improved their odds by announcing earlier during the conference that Newedge USA had finalized its membership in IDCG. However, many insiders at the conference still believed CME held an edge in getting the business.

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