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Bailey McCann, Opalesque New York:

In the wake of 2008, regulators in both the US and EU sought to limit the systemic risk involved in swaps with a bevy of new rules. Much of the guidance around these rules is more or less complete, however, even regulators themselves have conceded that the rules will do little to provide a clear picture of swaps risk. On Wednesday, Benoit Coeure of the European Central Bank's executive board, said that differences in regulation between countries make it impossible for any regulator to get a clear sense of the level of swaps risk at a given point in time.

The OTC market accounts for some $630tn. Regulators have been rushing to insert more supervision into that market after the Lehman collapse. According to Joshua Sterling and Akshay N. Belani, attorneys for Bingham, in a recent discussion on swaps, the point of central clearing is to reduce systemic risk by eliminating bilateral credit risk to swap counterparties that is inherent in uncleared swaps.

The problem with this plan Coeure says, is that right now, all the rules will do is concentrate risk at clearers and banks that deal directly with them. As written, the only way around this is for the small group of investors that have enough capital to be able to deal with the clearers themselves.

Other parts of the rules are also a little murky. "Firms are supposed to act within the best interests of their client," Sterling notes. "But it depends on the instrument wh......................

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