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News Release
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Nancy Condon (202) 728-8379
Brendan Intindola (646) 315-7277


FINRA Proposes Pilot Program for Margining Credit Default Swaps

Pilot Would Apply to Proposed Central Counterparty for CDS Trades

Washington, DC — The Financial Industry Regulatory Authority (FINRA) today announced that is has proposed a pilot program for the margining of credit default swaps (CDS) by FINRA-registered firms that clear CDS transactions on the Chicago Mercantile Exchange, other central counterparty platforms or outside of such platforms.

The pilot program is detailed in a proposal FINRA has filed with the Securities and Exchange Commission (SEC), with a request for accelerated approval. The program would expire on Sept. 25, 2009 — the same day that the SEC's temporary rules providing for the establishment of central counterparties for CDS transactions expire.

Historically, CDS trades by U.S. investment banks have not been transacted by broker-dealers themselves, but, rather, in affiliated entities. It is expected that with the creation of CDS central counterparties, an increasing volume of CDS transactions may be handled through broker-dealers The FINRA proposal recognizes this possible development and seeks comment on whether the potential risk to the broker-dealer channel makes sense as part of an endeavor to create greater systemic stability.

The rule proposal also requires that a firm notify FINRA of participation in the CDS central counterparty trading prior to the commencement of any such activity.

FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through comprehensive regulation. FINRA touches virtually every aspect of the securities business - from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and firms.

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