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Banks Act on Delays in Trading of Swaps

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From Reuters

The Federal Reserve Bank of New York said Thursday that 14 large Wall Street banks and industry regulators had agreed on concrete steps to help resolve problems with processing over-the-counter derivative trades.

In a meeting at the New York Fed in Lower Manhattan to discuss growing pains in the credit derivative market involving delays in the processing of trades, regulators also said they would continue to monitor the market “very closely.”

“The discussions focused on market practices with regard to assignments of trades and operational issues associated with confirmation backlogs,” the New York Fed said in a statement.

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“Industry participants outlined a number of concrete steps to achieve these goals,” the Fed said.

Investors use credit default swaps, the most common credit derivative, to protect against borrowers defaulting.

Regulators believe that delays in processing trades have the potential to throw the market into confusion if it comes under stress.

The Fed is also concerned that delays in informing involved parties when contracts change hands could spill into systemic problems in the global financial system.

“The Federal Reserve and other members of the supervisory community will continue to monitor developments in this market very closely, with a view to encouraging the firms to take the steps necessary to improve the market infrastructure that supports such trading activity,” the New York Fed said.

Representatives of Britain’s Financial Services Authority, who attended the meeting along with regulators from Switzerland and Germany, first raised concerns about operational risk in the credit derivative market in February.

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