If the recommendations in the report of the President’s Working Group are implemented, this uncertainty will be resolved. Clearinghouses for OTC derivatives could be created under various regulatory regimes. The only restriction would be that the clearinghouse be supervised. That supervision could be provided by the CFTC, the Securities and Exchange Commission, the Comptroller of the Currency, or the Federal Reserve.
Clearing OTC derivatives offers several potential benefits. A clearinghouse can substantially mitigate counterparty credit risk through multilateral netting of obligations and implementation of sound risk controls. Legal risks tend to be reduced with clearing because the default procedures of clearinghouses are supported by specific provisions of national law.