The market makers say they want transparency, too, but delayed clearing credit-default swaps (a multi-trillion dollar business) until the EU made moves to introduce legislation to mandate clearing earlier this year.
Most economists and accountants concur that exchange-based trading is the most efficient and transparent way to determine prices. Since the finance ministers and central bankers of the world's leading economies agree that market transparency is a priority in inoculating the globe against future market meltdowns, moving other over-the-counter derivative products to exchanges seems to be gathering momentum.
The idea is embedded in legislation approved by the House Financial Services Committee in October that would require "all standardized swap transactions between dealers and large market participants" to be cleared and traded "on an exchange or electronic platform."
Would the technology be ready? It's close, if the CDS clearing example is any indication. "In Europe they started rolling out CDS clearing in July," says MarkitServ chief executive Jeff Gooch, "but it is back-cycled weekly. Daily confirmation is just around the corner, with pilots already running in the U.S.
And it's not necessary to create a derivatives exchange out of whole cloth, either. Currencies and interest rates are already traded on exchanges around the world, so some infrastructure already exists. David Cox, director of research at the Deloitte Center for Banking Solutions, says a move to exchange-traded derivatives is probably doable.
"Anything that reduces risk is a good thing," says Cox.
