Its called spreading the risk, it will help keep Goldman Sachs in business and thats the real concern at the Fed and Treasuary.
Thks mokwit. It would be a horrendous situation if true. Like you say the most conservative accounts would be exposed to way more risk and much less reward than the worst accounts which would then feedback into a general decline in the quality of accounts to the lowest denominator. Only a fool would make such a system but I guess I am one to participate in it. I guess I will have to start to move to the etfs like proshares.
Anyone who reads the above post will be completely misled. The above post is on par with the famous goatse link from a few years back. Completely unrelated to the topic at hand. IB has been above board and honorable regarding staying out of the shenningans of the current financial crisis. As they say on slashdot, RTFA. The above poster appears to be a troll.
Peterffy is right, it has to be a separate clearing house, these things are like black holes sucking everything around them up. They wanted to trade them OTC, let them set up their own clearing house, the CME can administer it, but to co-mingle it with futures is reckless in the extreme.
If the Fed and Treasury are pushing hard for the CME clearinghouse then it will probably happen soon. That is bad news considering the CME Group is now the CME, CBOT, and NYMEX - if they miscalculate the risk no futures broker will be safe.
Does anyone have a list of all of the members of the CME clearing house? Don't do a big search or anything, I'll try to search some later if no one replies, no time right now. Any idea who has reasonable commissions that isn't a member?
It's not clear to me how exposed a retail IB account is. Clearly, a futures only account is exposed, at least theoretically, to losses from other customers of the FCM. Since an IB account can be 100% futures one minute, and 100% stocks the next, I don't know how it would work out oin an insol;vency. This may be the other shoe to the convenience of a universal account. You are exposed to risks you didn't comprehend.
The CDS market may be huge in terms of notional value but it is largely illiquid. I doubt there are daytraders or market makers in the CDS market (I hope I'm wrong). All it takes is one bad weekend headline to blow up a huge CDS seller (AIG style). CME members have put up $101 billion to guarantee the futures and options now cleared by CME. That is a puny amount compared to the 50 trillion CDS market. AIG's CDS collateral shortfall alone was 80 billion. I don't know how they will accurately price the risk in such an illiquid market. They need to either (1) segregate the exchange or (2) not allow any margin.
The risks of using the CME to clear credit swap trades would be more than offset by the opportunities it presents if retail traders are now able to trades these products.