Would Most CDS trading be banned under Legislation’s Draft ?
The US legislator is considering the option to forbids so-called “Credit Default Swap” (naked CDS) idea. Currently, such Non-entity CDS practice would enable investors to invest in enterprise’s ‘creditworthiness’ , which most of the time could bring much risks.
As part of the financial transformation effort, the US House of Representatives is looking at how to best ‘govern’ this particular financial investment tool. However, because of the nature of how this financial sector operate, entrusting the supervision task to both the Securities Trading Commission (SEC) and Commodity Future Transaction Commission (CFTM) , through establishing an committee to handle disputes, could be tricky in implementation.
In the proposed plan, one of the possible workout in supervising the Credit Default Swap ( CDS ) is thru forbidding the so-called “non-entity CDS”, yet another plan is to have those market players to disclose their involvement and exposure, and cash flow position, which is more towards self-governing. In the draft, eventually US Trading in those credit derivatives sector would then be processed by a clearing house instead.
Either each, the reformation efforts look like it’s a bumpy route ahead. Nevertheless, with the positive sign on early recovery, with big enterprise posting positive result, it looks like the market is heading for the better.
