The Federal Reserve Bank of New York met with leading players of the credit default swap world last week, and praised the participants for taking steps to move CDS to a clearing house environment. Major dealers pledged to start using a dedicated clearing house in Europe by the end of July—if it’s ready, but only after EU Finance Commissioner Charlie McGreevy put legislation in motion to mandate clearing. The EU, the FRBNY, and dealers had agreed to begin such clearing operations by the end of 2008.

The dealers and the buy side firms committed to writing the FRBNY a letter by May 29 describing “next steps” for hardwiring the auction-based settlement mechanism for swaps, benchmarking a move to automated processing, expanding clearing, and strengthening industry governance. But many economists and industry observers believe that much of the CDS business should be exchange traded, which would bring the greatest transparency—and true pricing—to this barely regulated market.

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