Investors prepare to hedge Cocos with CDS after rule change

By Graham Bippart, Nathan Collins
21 Aug 2014

Upcoming changes to credit default swap (CDS) definitions could have a positive effect on the contingent convertible securities (Coco) market, allowing investors for the first time to buy CDS protecting against the risk of conversion into equity or write-down for tier two Cocos.

The new hedging options are expected to tighten spreads in the Coco market and could help to avoid wild drops in price in the illiquid securities, according to Barclays analysts.

Under the International Swaps and Derivatives Association’s new credit definitions, effective from September 22, it will become possible ...

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