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Capital Markets Law Journal Advance Access originally published online on August 23, 2008
Capital Markets Law Journal 2008 3(4):417-424; doi:10.1093/cmlj/kmn022
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© The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

In defense of ‘captive’ clearing

Philip McBride Johnson*
* Head of Exchange-Traded Derivatives Law Practice: Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. Past Chairman: Commodity Futures Trading Commission. See also Marquis’ Who's Who in America and Who's Who in American Law; Chambers Global: The World's Leading Lawyers and The Best Lawyers in America. The author's law firm provides substantial legal services to the CME Group that has a ‘captive’ clearing system.

The first 150 words of the full text of this article appear below.


Key points

  • After forcing the American futures markets in the 1920s to adopt clearing systems to guarantee against default on trading obligations, the US government is now proposing to divest the exchanges of that function and to encourage independent clearing organizations unaffiliated with any of the markets in the hope that it will increase competition between the futures exchanges even though traders select their markets based on transaction speed and cost rather than on clearing services.
  • At a time when other segments of the financial system are facing staggering losses, while the ‘captive’ futures clearing houses have avoided a single default for nearly a century, past CFTC Chairman Philip McBride Johnson asks why the government would want to transport the subprime disaster's formula of creating risk in one place (there, mortgage originators and here, the markets) and shifting it to others (there, investors and here, independent clearing organizations) into the . . . [Full Text of this Article]

 

   1. The origin of modern futures clearing
 

   2. The mechanics of futures clearing
 

   3. The CFTC and the importance of exchange clearing organizations
 

   4. The author's perspective
 

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Capital Markets Law Journal 2008 3: 373-375. [Extract] [Full Text]