Fed to Meet With Credit-Default Industry on Clearinghouse Today

By Shannon D. Harrington and Matthew Leising

Oct. 17 (Bloomberg) -- The Federal Reserve Bank of New York plans a third meeting today with the credit-default swap industry, as it presses for a central clearinghouse for the $55 trillion market, people with knowledge of the talks said.

Fed officials summoned dealers and exchanges to the gathering after meeting twice last week, according to the people, who declined to be named because the discussions are confidential.

The Fed stepped up pressure on the industry to create a central counterparty that would absorb losses should a market maker fail after last month's bankruptcy of Lehman Brothers Holdings Inc. Because the contracts are traded bilaterally between banks, hedge funds, insurance companies and other institutional investors, each party faces the risk of losses should their trading partners default.

Four groups have been vying to operate clearing operations, including a partnership between Chicago-based CME Group Inc. and Citadel Investment Group LLC and a group that includes Intercontinental Exchange Inc., dealer-owned Clearing Corp. and credit swap index owner Markit Group Ltd. Eurex and NYSE Euronext also have submitted proposals.

While the Fed has said it isn't looking to endorse any one plan, it's keeping pressure on the group to drive discussions until the industry finds a workable solution, one of the people said.

New York Fed spokesman Andrew Williams declined to comment in an e-mail. CME spokesman Allan Schoenberg and ICE spokeswoman Kelly Loeffler didn't immediately return telephone calls.

To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net.