Derivs - Credit

Hedge funds have been using steepeners on Residential Capital, the troubled real estate arm of GMAC Financial Services, selling one- to two-year credit default swaps and buying five- to seven-year protection in the belief the company may eventually file for bankruptcy.

Greece's status as the black sheep of the eurozone looks secure for the foreseeable future. But outside of the currency club, Iceland is again attracting the wrong sort of attention amid signs that it is falling foul of the international capital markets.

Sebastian Moritz, a senior flow credit salesman at London boutique StormHarbour Partners, has left the firm less than a month after joining.

Credit derivatives pros say the chances of another Amherst Holdings-style CDS case where one side gets stiffed because the underlying assets are bought out, making the contract null and void, are slim but still possible.

Some market watchers are holding out hope credit default swap flows in 2010 will pick up as uncertainty surrounding regulation is addressed, contract standardization beds down and the recovery mounts.

Counterparty risk fears were somewhat allayed in 2009, after a tumultuous 2008, but the issue continues to be a top priority for sellside and buyside firms.

A European Parliament committee is working on a position paper on over-the-counter derivatives regulation.

The International Brotherhood of Teamsters has contacted a dozen Street firms, from dealers to hedge funds, about what it believes are abuses relating to credit default swaps referencing distressed trucking company YRC Worldwide Inc. The union is also considering taking the matter to U.S. regulators.

The U.K. Financial Services Authority this morning fined Toronto Dominion Bank in connection with risk management failures in a CAD96 million (USD89 million) trading loss its credit default swaps desk took last year.

The U.K. Financial Services Authority is not in favor of imposing position limits on over-the-counter derivatives, going against a proposal put forward by the European Commission in October.

Intercontinental Exchange’s ICE Clear Europe unit started clearing euro-denominated, single name credit default swaps today on three utilities—E.ON, Centrica and Enel—but the dealers behind the trades were not revealed.

The U.S. House of Representatives passed its financial reform bill today, 223-202, including amendments providing a controversial limit on banks’ ownership of clearing houses and a definition of “major swap participant” that’s better for the industry.