Derivs - Regulation

A dispute between Lehman Brothers’ lawyers and Minibond holders over payment rights has raised questions about what would happen if Lehman—the swap counterparty to the issuer—is authorized in bankruptcy proceedings to get paid out before investors. There are sobering implications beyond just Asia, where investor appetite was strong.

The first launch of an exchange-based clearing model for credit default swaps, by NYSE Euronext subsidiary Liffe and LCH.Clearnet, will solely have capability to clear European index trades. Single-name trades will follow.

Structured product professionals want industry-wide disclosure rules, according to a Structured Products Association survey of sellsiders, wholesalers, third-party vendors and lawyers.

The Bank of Thailand is set to introduce fx regulations early next year that will set out currency denomination and hedging requirements for all over-the-counter trades.

The International Accounting Standards Board today published proposals for the treatment of derivatives embedded in financial contracts.

Credit default swap spreads on Ireland sat at 178 basis points this morning—20% tighter than last Monday—after the government moved to inject EUR5.5 billion (USD7.7 billion) into three of its banks.

The Bush administration’s decision to lend USD17.4 billion to automakers General Motors and Chrysler has brought about a legal question as to whether the event will trigger credit default swaps on the names.

The International Swaps and Derivatives Association has applauded the Reserve Bank of India’s plans to introduce credit default swaps to India next year, but has questioned its move to allow CDS only as an exchange-traded product.

The Federal Reserve’s decision to lower its overnight interest rate to a target range of between zero and quarter of a percentage point caused the CDX North American Investment Grade index series 11 to tighten dramatically yesterday.

The permanent ban of naked short selling in Australia, which comes into effect Jan. 8, will force issuers of structured products to use more costly methods to hedge exposures, according to market commentators.

The price to settle loan-only credit default swaps referencing Hawaiian Telecom Communications Inc. landed at 40.125% today, meaning sellers of protection on the loans will pay out just under 60 cents on the dollar.

The Internal Revenue Service is looking at the use of total return equity swaps between securities dealers and foreign investors to get around taxes on dividends.