Accounting issues are set to take center stage as the European and U.S. regulators introduce new rules and set their sights on merging the systems. "Accounting has become one of the most important aspects of the credit derivatives market," according to Alessandro Cocco, v.p. and assistant general counsel in the legal department at JPMorgan in New York.
Whether collateralized debt obligations have to be consolidated onto the holder's balance sheet is one of the hottest issues, according to Peter Jeffrey, partner at PricewaterhouseCoopers in London. "This is where the key accounting debate will be," he added.
The main criteria in the U.S. is which investor holds the majority of the expected loss, if no institution satisfies this then it comes down to who will receive a majority of the expected profit. This will often be the CDO manager, especially if they have a performance-related fee and hold junior notes, according to Jeffrey.
Accountants To Take Center Stage
Accounting issues are set to take center stage as the European and U.S. regulators introduce new rules and set their sights on merging the systems. "Accounting has become one of the most important aspects of the credit derivatives market," according to Alessandro Cocco, v.p. and assistant general counsel in the legal department at JPMorgan in New York.
Whether collateralized debt obligations have to be consolidated onto the holder's balance sheet is one of the hottest issues, according to Peter Jeffrey, partner at PricewaterhouseCoopers in London. "This is where the key accounting debate will be," he added.
The main criteria in the U.S. is which investor holds the majority of the expected loss, if no institution satisfies this then it comes down to who will receive a majority of the expected profit. This will often be the CDO manager, especially if they have a performance-related fee and hold junior notes, according to Jeffrey.
