Sat, Dec 10, 2016
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. Institutions - Texas County & District culls 5 hedge funds, reallocates to existing managers, Kentucky board gives final approval to halve hedge fund portfolio, $38bn Finnish fund moves assets to U.S. as Europe flounders, South Korea’s National Pension Fund holds 5% stake in 62 listed companies[more]

      Texas County & District culls 5 hedge funds, reallocates to existing managers Texas County & District Retirement System, Austin, continues to reduce the number of hedge funds, but not the size of its $6.2 billion hedge fund portfolio. It will redeem a total of $760 million from five hedg

    2. Opalesque Roundtable: Australian family offices search for good risk adjusted returns, happy to pay for skill[more]

      Komfie Manalo, Opalesque Asia: Australian family offices want foremost good risk adjusted returns, and they are happy to pay for the skill, and in some cases, the limited capacity of an active manager. Jonas Daly, Head of Distribution at B

    3. StepStone announces close of Swiss Capital acquisition[more]

      StepStone Group LP announced it has successfully closed the acquisition of Swiss Capital Alternative Investments AG, one of the leading private debt and hedge fund solutions providers in Europe. The transaction was originally announced in May 2016, and has been in the process of receiving regulatory

    4. Investing - Stephen Cohen investing $275m in free clinics treating veterans' mental health issues, California Resources loses favor with hedge funds[more]

      Stephen Cohen investing $275m in free clinics treating veterans' mental health issues From Healthcarefinancenews.com: …Now, a new chain of free mental health clinics for vets has opened in five cities across the United States to fill the gap. The much-needed new treatment is underwritten

    5. Hedge funds flat in last week of November 'in sympathy with markets’[more]

      Komfie Manalo, Opalesque Asia: Hedge funds were close to flat in the last week of November in sympathy with markets, which took a pause ahead of the OPEC meeting and Italian referendum. The Lyxor Hedge Fund Index was -0.1% as of end November 29 (-1.7% YTD), according to the latest