Regulatory concerns relating to operations and risk management in the credit derivatives market
Derivatives Regulation: UK legal and regulatory developments:
Regulatory concerns relating to operations and risk management in the credit derivatives market
In February 2005, the Financial Services Authority (FSA) published a �Dear CEO� letter, in which it set out a number of concerns relating to operations and risk management in the credit derivatives market. The letter was published following market soundings undertaken by the FSA of the operational activities of a number of firms engaged in the credit derivatives
market. This activity itself followed international enquiries into credit
derivatives, including an investigation by the Joint Forum1 which resulted in the publication in October 2004 of an extensive report on credit risk transfer (the Joint Forum Report).
Regulatory investigations are not the only reason for credit derivatives generating recent news reports. In February 2005, Reuters reported that derivatives litigation was set to explode. This followed news of Barclays Capital settling a claim by Germany�s Nord Bank over a US$151m
collateralised debt obligation (CDO). The concerns over an increase in the number of credit derivatives-based lawsuits arise from a fear that, if credit spreads widen as a result of predicted interest rate rises, a number of
investors will incur significant losses and may be tempted to litigate. Such claims might be based on the grounds that parties were mis-sold unsuitable credit derivatives or that there had not been adequate disclosure of the risks.
Read this article on credit derivatives risk management and operations.
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Labels: credit derivatives, derivatives, regulation, risk management, trading
posted by Victor Lloyd Smith @ 4:34 PM
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