Central Clearing House for CDS

A designated third party that insures that institutions selling the CDS through its operation has the proper amount of economic and regulatory capital, providing buyers of the CDS a measure of assurance the contract will be honored. A well-regulated and prudently managed central clearing house can contribute to reducing the systemic risk associated with counterparty credit exposures. In combination with standardization and centralized trading it could provide enhanced liquidity and price discovery and also increased transparency concerning trading volumes and exposures of counterparties.