Sun, Sep 21, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Edhec warns of dangers of prohibiting naked sales

Tuesday, March 08, 2011
Opalesque Industry Update - In an open letter of March 8, 2011 addressed to the Chair of the Economic and Monetary Affairs Committee of the European Parliament, Sharon Bowles, and Pascal Canfin, the Committee’s Rapporteur on the draft EU regulation on short selling and credit default swaps, EDHEC-Risk Institute has warned of the dangers of prohibiting “naked” sales of sovereign credit default swaps.
  • It will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit default swaps are assumed to cover.
  • This prohibition would make it harder for countries to manage the interest rate risk on their debt actively, as their counterparties would then no longer be able to hedge the country risk of the interest rate swaps they may have entered into. This active management of the yield curve is a major component in the optimisation of the cost of public debt.
  • More harmful still is that a very strict definition of a naked sale would keep investors who finance public investment or companies that enter into contracts with sovereign nations or with state-owned companies from hedging the default risk of their counterparties. At a time when public-private partnerships and private financing of public infrastructure projects are considered one of the drivers of global growth, making it harder to manage country risk may, at the very least, increase the costs of these partnerships and this financing and, at worst, prove a major hurdle to their development.
  • Finally, by making the market for hedging default risk more complex, the markets may be deprived of the debt of countries with low ratings, of investors, and thus of liquidity, which will inevitably increase the cost of this debt.
  • Source

    (Press release)
    bc

    What do you think?

       Use "anonymous" as my name    |   Alert me via email on new comments   |   
    Today's Exclusives Today's Other Voices More Exclusives
    Previous Opalesque Exclusives                                  
    More Other Voices
    Previous Other Voices                                               
    Access Alternative Market Briefing


    • Top Forwarded
    • Top Tracked
    • Top Searched
    1. SEC charges 19 investment firms and one trader for breach of Rule 105[more]

      Benedicte Gravrand, Opalesque Geneva: The Securities and Exchange Commission (SEC) started a push to enhance the enforcement of Rule 105 of Regulation M last year to uncover hedge funds and private equity firms that have illegally participated in an offering of a stock after short selling it duri

    2. Fund managers, bullish on Europe, anticipate monetary policy separation of Fed and ECB[more]

      Komfie Manalo, Opalesque Asia: At least 202 fund managers with $556bn of assets under management said that while the European Central Bank (ECB) has eased its monetary policy that sent sentiments towards Europe to pick up, the Fed is expected to hike its rate in the spring of 2015. Investor

    3. Institutions - North Carolina workers call on state pension to dump up to $6bn in hedge funds, UK pension fund criticizes hedge fund fees[more]

      North Carolina workers call on state pension to dump up to $6bn in hedge funds From Forbes.com: The State Employees Association of North Carolina this afternoon called on state Treasurer Janet Cowell to withdraw all investments in hedge funds, which appear to amount to approximately $6 b

    4. News Briefs - Limited partners of investment managers may be subject to self-employment taxes, Just one week left until NYC's Rocktoberfest[more]

      Limited partners of investment managers may be subject to self-employment taxes On September 5, 2014, the Internal Revenue Service (“IRS”) issued Chief Counsel Advice 201436049, concluding that members of an investment manager were subject to self-employment taxes with respect to their e

    5. Institutions - Adviser's faith in hedge funds unshaken by CalPERS' move Advisers weigh in on CalPERS’ decision, Gina Raimondo sees no reason to follow California’s lead, exit hedge funds, Danish pension funds step up 'alternative investments'[more]

      Adviser's faith in hedge funds unshaken by CalPERS' move From WSJ.com: Financial advisers who use hedge funds in their clients' portfolios say they aren't rethinking that approach after a huge California pension fund announced plans to exit the hedge-fund market. The decision by the Cali