Jim,
This article describes some flaws of the CDS contracts as well as first test settlement as companies start to have debt problems.
Best regards,
CIGA Christopher
Dear Christopher,
Weapons of mass financial destruction remain weapons of mass financial destruction regardless of whether they are wearing a suit over jeans.
Regards,
Jim
Default Swap Reforms Roiled as Aiful Tests Settlement (Update1)
By Abigail Moses and Shannon D. Harrington
Nov. 27 (Bloomberg) — Wall Street’s system for determining payments on derivatives linked to the debt of defaulted companies is showing cracks less than a year after securities firms changed practices to avoid “Draconian” regulation.
Credit-default swaps tied to Thomson SA, the Paris-based owner of film processor Technicolor Inc., paid some holders 30 percent less than those with contracts expiring a day later. In Japan, owners of swaps on Aiful Corp. haven’t been compensated, though one of its banks said the consumer lender skipped loan repayments. Dealers can’t agree whether to reimburse investors in Mexican cement maker Cemex SAB’s debt swaps.
Disparities are arising in spite of practices adopted in April and July to standardize settlements and curb risk in a market that exacerbated the worst financial crisis since the 1930s by contributing to the downfall of American International Group Inc. Analysts at Bank of America-Merrill Lynch, Barclays Capital and UniCredit SpA say changes are needed as dealers examine how to interpret existing rules to maintain investor confidence.
“The first cracks are being shown in the protocols,” said Edmund Parker, head of derivatives at Chicago-based law firm Mayer Brown LLP in London.
The rules are being tested as the global default rate rises. The rate for companies ranked below investment-grade reached the highest since the Great Depression in October and will peak at 12.5 percent next month, Moody’s Investors Service said Nov. 5.
