Crocodilian

Financial Company Default Risk

@Rakesh
"But, Crocodilian, you have a valid point, which the regulators must clarify immediately before talking about a central clearing house. How "central" are these CDS contracts? What the variation levels in their contract terms? Many thanks - Rakesh"

Short answer: No one knows what the variation in the terms are. These instruments were designed by financial engineers at a small number of institutions -- JP Morgan probably has the best overall picture of what the terms look like.

But the more you read about these instruments, the more complex the story is. These contracts have complex provisions to account for certain kinds of M&A events, for example. The "Calculation Agent" (usually the firm that designed the product) has to evaluate many complex corporate histories, mergers, sales of assets, and figure out how that applies to each of these instruments.

The more you look, the less amenable to "central clearing' the existing instruments appear to be:

European CDS instruments typically have different terms from US ones, for example.

Wikipaedia has an _excellent_ article on CDS
en.wikipedia.org/wiki/...