Wed, Aug 24, 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. LatAm hedge funds surge in 1H to +24.4%, emerging markets assets rise[more]

      Komfie Manalo, Opalesque Asia: Hedge funds investing in Latin America posted strong gains through mid-2016, reversing declines in four of the past five years, including the last three years, to lead all areas of hedge fund performance through the first half of 2016, according to the latest HFR Em

    2. Asia - LGT Capital Partners: Alternatives set for continued rise in Asia[more]

      From Asianinvestor.net: More flows are likely into insurance-linked strategies, private equity and trend-following strategies/CTAs, given the benefits of such investments, argues LGT Capital Partners. Despite the numerous quantitative easing programs and bailouts of recent years, the quest for

    3. Opalesque Roundtable: Low and high fee investments often better than mid fee hedge funds[more]

      Komfie Manalo, Opalesque Asia: Hedge funds that charge the low and high fees stuff often provide better returns than "those sort of mid-fee investments", said Keith Haydon, chief investment officer of Man FRM. (Alternative) investment managers who charge high fees would often provide the most int

    4. Opalesque Exclusive: Algorithms platform aims to target typical challenges found in quantitative hedge funds[more]

      Benedicte Gravrand, Opalesque Geneva: Last month, Quantopian received investments from Point72 Ventures, the new venture capital arm of Steven Cohen’s Point72 Asset Management.

    5. Hedge fund investors pull $5.7 billion in July[more]

      From Bloomberg.com: Hedge funds suffered a third consecutive month of outflows in July as investors withdrew $5.7 billion, according to industry tracker Eurekahedge. Redemptions totaled $20.7 billion in the three months through July, with money managers betting on equities suffering $18.4 bill