In the latest in our series on the unanswered questions of the OTC clearing mandate, William Mitting looks at the issues raised by exemptions.
No sooner had Dodd-Frank been passed, the debate on
exemptions for OTC clearing began to rage. The consideration of
exemptions to mandatory clearing represents a fine line between
mitigating the burden for end users and adding unworkable
complexity to the mandate.
In principle, the issue of exemptions is simple: whoever
represents the smallest risk should be exempt from a mandate
designed to reign in the risk takers. In practice however, the
very existence of an exemption throws up a series of structural
Omgeo’s Ted Leveroni says: "The whole issue of
exemption needs to be established on both sides of the
Atlantic. You have two sides to a swap and if one side is
exempt from central clearing, how will they trade? Will there
be a new market for an exempt entity to trade with another
exempt entity? I have asked a number of people that and there
has been a lot of head scratching."
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