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Credit Default Swaps

House of Lords written question – answered on 6th April 2011.

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Photo of Lord Myners Lord Myners Labour

To ask Her Majesty's Government whether they regard trading in credit default swaps to be a banking activity; and whether they propose to require such trading to be cleared through central clearing parties.

Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury

The Government recognise that credit default swaps are used not only by banks but also by non-bank entities for financial hedging and investment purposes.

In line with the G20 commitment which calls for all standardised over-the-counter (OTC) derivative contracts to be cleared through central counterparties by end-2012 at the latest, the Government are now engaged in negotiating European legislation which will require standardised OTC derivatives, including credit default swaps, to be cleared through central counterparties. Details of the entities and instruments covered by this legislation are still in negotiation.

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