Wednesday, October 1, 2008

Tighter Regulation of Credit Default Swaps Proposed by SEC and New York

Credit default swaps are coming under increasing scrutiny in recent days by New York's governor and the state's attorney general, and the SEC has called for authority to regulate the CDS market.
  • On September 22, 2008, in connection with Circular 19 providing for the issuance of “best practices” guidelines for financial-guaranty insurance companies participating in CDS transactions ( “Circular 19”), Governor Paterson of New York announced that his state’s Department of Insurance (the “Insurance Department”) will regulate certain CDS transactions that have previously not been considered to be insurance products.

  • On the following day Chairman Cox of the Securities and Exchange Commission (“SEC”) asked Congress to grant the SEC jurisdiction over the CDS market.

  • Later in the week, news reports indicated that the New York Attorney General’s office has commenced an investigation into alleged manipulation of the CDS market as a way to push down the prices of stocks.
K&L Gates takes a look at these developments and the CDS market at: