And as the bond and credit-default-swaps markets expand, the stakes will get higher.
The good news is that the swaps markets did not utterly seize up after it went bust on September 15th.
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More critically, these risks can spread like wild fire as we saw in collateralised debt obligations and credit default swaps markets.
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The Fed rigged interest rates and big government rigged the rules to unhinge the subprime-mortgage, derivatives and credit-default-swaps markets, which the banks took full advantage of, and when the balloon went up they stuck out their hands for a Big Government bailout.
The groups said in a press release that they have published the FIA-ISDA Cleared Derivatives Execution Agreement as a template that can be used by participants in the cleared swaps markets in negotiating execution-related agreements with counterparties to over-the-counter derivatives that are intended to be cleared.
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Default risks, as measured by credit default swaps, are on the decline in the emerging markets and even better than a number of European countries.
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Greifeld aims to use that system to push the Philly operations, now the third-largest U.S. options exchange by volume (17% of all trades), into new markets, such as the one for interest rate swaps.
This is one reason why credit default swaps suggest India is already a bigger investment risk than emerging markets such as Vietnam and more than double the risk of Brazil, Russia, China and South Africa.
The decision by the Fed to offer emergency liquidity to Bear Stearns and to facilitate its acquisition by JPMorgan Chase had less to do with the size of Bear's balance-sheet than with its central role in markets for credit-default and interest-rate swaps.
There would be no collaterialised debt obligations, (CDOs), no credit default swaps (CDS), indeed much of the complexity of the financial markets would simply disappear in a puff of smoke.
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It could make even the biggest markets foreign exchange, government bonds, interest-rate swaps less liquid.
The polemical edge is unrelenting: deregulation of the financial markets was a disaster, and piling collateralized debt obligations and insurance swaps atop sub-prime mortgages was insane.
Duffy and Donohue argued that the two exchanges rarely competed directly, and that their chief competition wasn't other futures markets but the vastly larger markets in over-the-counter derivatives like interest-rate swaps.
He also said the Fed is encouraging the development of a central counterparty clearing system for trading in credit default swaps and working on strengthening the resiliency of the short-term secured funding markets that left Bear in the lurch in March.
If there's to be a Greek disorderly default (hypotheticals are Greek too), not only does it trigger default swaps sweeping through the financial sector, but it raises the obvious question for the bond markets: if eurozone partners will let Greece go, why not Italy, Spain, Portugal or Ireland, so who's next?
Credit-default swaps, a type of insurance against bankruptcy, suggest that the borrowing costs of big emerging-markets firms have spiked along with those of their home countries' governments.
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