Regulatory wrangles in the CDS market
Regulation is likely to have a significant impact on the CDS market in the coming months, with moves to central clearing and an exchange-traded model in the offing. But how will it affect trading activity by buy-side institutions?
In the wake of the Lehman Brothers collapse in September 2008, and the subsequent bailout of US insurer AIG, credit derivatives attracted the ire of policymakers. Credit default swaps were blamed for the build-up in systemic risk that contributed to the financial crisis. Warren Buffett’s famous description of derivatives as “financial weapons of mass destruction” gained common currency.
A financial reform package – the Dodd-Frank Wall Street Reform and Consumer Protection Act – was announced by
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