MARKETS The House financial services committee in the US last week approved a bill to deliver sweeping changes to the structure and regulation of the massive over-the-counter derivatives business.
This bill goes far in reducing counterparty risk in the OTC derivatives market and the systemic costs of bankruptcy of a large sector participant. The process of closing positions and managing exposures will be much easier. The proposal also should reduce transaction costs in swap markets and improve price discovery. Furthermore, participants will save the cost of credit insurance which is typically taken out against counterparty defaults.
