Changes in Credit Default Swap Market Bode Well for Transparency
ByThe credit default swap market is the latest bank activity to encounter Libor-style market abuse shame. Twelve banks on Friday agreed to a $1.9 billion settlement in the United States after investor accusations that they had abused their market-making position in credit default swaps, which enable investors to protect themselves against losses. Even so, the market is mending itself.
Abuse in the credit default market is not like the London interbank offered rate or foreign exchange scandals. There, price-setting mechanisms were rigged; here, the entire market structure was said to be tilted toward the banks. A group of investors and hedge funds argued that banks extracted excessive profits by exploiting their dominant position to charge high trading fees. Pricing in over-the-counter sectors like the credit default swaps is more opaque than on transparent exchanges, and banks, investors said, resisted attempts to change the status quo…
Changes in Credit Default Swap Market Bode Well for Transparency
