Derivs - Regulation

The notional outstanding value of credit derivative business decreased by 12% in the first six months of the year to USD55 trillion from USD62.2 trillion at the end of December, according to a mid-year survey by the International Swaps and Derivatives Association.

Allen & Overy is preparing a series of position papers on behalf of unnamed investment banks that want to have their say as state and federal plans to regulate the credit default swap market gather momentum.

Now that the Securities and Exchange Commission has banned the practice of short selling on certain financial stocks, the credit default swap market is expected to pick up.

The Securities and Exchange Commission’s ban on short selling caused the flow of over-the-counter variance swaps to slow to a trickle today as banks began turning away hedge fund business due to uncertainty over the ruling.

The drumbeat for increased regulation grew louder last week as Wall Street reeled and Main Street started to take notice.

London investors are urgently trying to understand the reporting requirements they are subject to under the Financial Services Authority’s ban on new or increased net short positions in publicly quoted financial companies.

A Securities and Exchange Commission regulation that as of 12.01a.m. will disallow naked short selling is expected to have severe implications for over-the-counter equity derivative market, by forcing the business into the hands of fewer players.

Rafal Gawlowski, head attorney for equity derivatives at Citigroup, has joined Latham & Watkins as counsel in the firm’s corporate department in New York.

Five-year credit default swaps on American International Group are trading at 32 basis points upfront, above the running spread, down from 39 bps yesterday after the bailout news.

Lehman Brothers has agreed to sell its North American investment banking and capital markets business to Barclays Capital.

The International Swaps and Derivatives Association has determined that stripped pieces of Fannie Mae and Freddie Mac bonds cannot be used as deliverable obligations under standard credit default swap contracts.

Dealers holding over-the-counter equity derivative contracts on Lehman Brothers Holdings appear to be better off with the bank filing for bankruptcy than they would have been if it had been rendered insolvent.