Derivs - Credit

Hedge funds are unwinding their long positions on BP’s credit default swaps to take profits as a raft of positive developments have buoyed the oil company.

Increased market confidence following the results of the European bank stress tests have sent market players covering short credit positions.

Conduit Capital Markets has hired Chris Macmillan, the ex-head of U.K. debt and credit market sales at Crédit Agricole Corporate and Investment Bank in London, as head of credit sales, also in London.

UniCredit has hired Tim Armitage, a former head of structured credit trading at Bear Stearns, as a managing director in structured credit trading in London.

Draft proposals in Germany would limit foreign counterparties’ ability to terminate contracts with German institutions at risk of insolvency, which market participants fear will put a damper on trading with them.

The limited development of the derivatives markets in Asia-Pacific helped to reduce the potential losses to counterparties during the credit crisis three years ago, the Bank of International Settlements said today.

Buyside firms are looking for industry-wide standardized clearing documents in coming months as the newly-signed U.S. Dodd-Frank Act pushes much of the over-the-counter market towards central clearing.

The proprietary trading ban in the U.S. Dodd-Frank Act could limit a firm’s ability to hedge against the risks associated with its structured product offerings.

The International Swaps and Derivatives Association is preparing standardized documents for first-to-default-swaps and nth-to-default swaps, which market participants say will cut down the times to trade the swaps and make it possible for trades to be confirmed in a repository.

Market players are increasingly discussing the use of liquidity scores in managing the counterparty risk of credit default swaps.

The difference between cash and credit default swaps was more negative over the past week and a half because of the equity rally, hitting levels last seen before the big bailout of European countries on May 10, said Mikhail Foux, a credit strategist at Citi.

Close-out netting under International Swaps and Derivatives Association Master Agreements could become less effective once regulatory reform forces companies to separate various types of derivative activity.