Regulators in the U.S. and U.K. are pledging to work together to combat shady activities in the credit derivatives markets.
In a joint statement, the heads of the U.S. Securities and Exchange Commission (SEC), U.S. Commodity Futures Trading Commission (CFTC) and the UK’s Financial Conduct Authority (FCA) said on Monday that they intend to collaborate to fight manipulative behaviour in the credit default swap (CDS) markets.
“The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally,” they said.
Earlier this year, the International Swaps and Derivatives Association (ISDA) proposed policy changes to curb the incentives for so-called manufactured credit events — which involve transactions that allow for defaults that have little or no impact on the borrowing company, but nevertheless amount to a credit event in the CDS market.
“These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns,” the SEC, CFTC and FCA said.
As a result, the regulators are planning to work together to “prioritize the exploration of avenues, including industry input which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets.”