Did Someone Say "Party?"

Today, the President's Working Group on Financial Markets announced a Memorandum of Understanding (MOU) between the Federal Reserve, the SEC and the CFTC. The three agencies agreed to work together to create central counterparties for credit default swaps (CDS). A central counterparty (CCP) is a third wheel who stands between the parties to a contract. Because the CCP would have to be a party to every CDS agreement, the CCP would know the size and the value of the market.

The MOU is the first salvo in the push to bring some regulation to the market in OTC traded derivatives contracts (more here). It is vaguely worded and full of caveats. Sections 2 - 7 are about what the MOU does not do. Section 8 says that the signatories will "take into account" the Group of Ten report: "Recommendation for Central Counterparties."