Touching upon a subject that, in the words of one portfolio manager, has the market up all night, Laura Unger, former acting chairman of theSecurities and Exchange Commission, offered a tongue-in-cheek discussion of the five basic rules for steering clear of regulation. "Sound valuation is the key to transparency, which is the key to a healthy marketplace," she said, citing valuation as the most important factor for maintaining freedom from regulation. To obtain solid valuation, Unger recommended that loan market players employ a method that is above all reproach. "You will never be criticized for marking to market," she said.
Another key to avoiding regulation is to act like a regulated market. Unger noted that, thanks in large part to the efforts of the Loan Syndications and Trading Association, the loan market does behave like it has a regulatory body. But because the LSTA does not have the power to regulate, the responsibility for keeping market players in line becomes one that has to be borne by the entire market.
"What are the ramifications if someone does not comply?" asked Glenn Stewart, managing director of the syndicate desk at Banc of America Securities. "The membership [of the LSTA] needs to enforce its own rules." It was suggested that the market refuse to do business with maverick players who do not comply with the consensus standards. "We need to exercise an element of market discipline," Stewart said. "We have to do it ourselves." Unger echoed a similar sentiment. "An accredited investor base means that the SEC is less inclined to add investor protection," she added.
Other suggestions offered by Unger included: avoid scandals at all cost; don't get too big and don't make too much money; and avoid conflicts of interest. Scandals and regulatory frenzy have wreaked havoc on the financial markets during the past year, but Unger predicted that out of the storm would come more accurate valuations, more rational markets and more accountable company management.