Comments on: Prosecuting insider trading in CDS

By: Story_Burn

Story_Burn — Wed, 31 Mar 2010 21:56:54 +0000

CDS is nothing short of a gambling vehicle

By: Greycap

Greycap — Wed, 31 Mar 2010 15:16:04 +0000

Um … if we’re going to stamp out insider trading in the CDS market, can we do the same thing in the cash bond market too? Please? And given that the SEC already has authority over bonds, extending this to CDS is what the mathematicians call necessary but not sufficient. Wholesale spine transplants would also seem required.

That’s the weird thing about the exchange-traded CDS idea – the derivative would be more transparent than the underlying. (On what planet do “most” bonds trade on an exchange?)

By: GingerYellow

GingerYellow — Wed, 31 Mar 2010 15:13:43 +0000

“This case is slightly easier to prosecute, since it seems to involve a salesman at a regulated sell-side investment bank, Deutsche’s Jon-Paul Rorech, illicitly giving inside information to one of his buy-side clients. That’s illegal whether there’s any trade involved or not, I think.”

You can give inside info to a buy-side client, but if you do, you have to “bring them over the wall”, ie make them a privileged insider. If you do, they can’t trade on the information. This has come up recently in the bond markets – which traditionally haven’t seen much insider trading enforcement – as a result of extensive presounding of deals by lead managers. There was a case relatively a while back in the UK where a couple of bond investor/traders were punished (fairly mildly) by the FSA for trading after being pre-sounded by banks on a new bond issue.

By: KenInIL

KenInIL — Wed, 31 Mar 2010 15:11:57 +0000

Regulating CDS won’t really help, you know. The financial industry will just make up some other product so they can say “Oh, this isn’t a CDS, it’s a PDQ and there aren’t any regulations on those.”