The head of operations at a large investment bank grimaces as he recalls the conversation with the global head of all the firm’s markets businesses about settlement delays in credit derivatives. “Basically he called me in to tell me: ‘This is absolutely insane’. And I had to tell him: ‘Yes it is, but this is the way this market now works.’”
What roused the ire of the division head was how traders at his and other firms had let hedge funds get away with assigning positions originally written with one dealer and passing them on to another without first obtaining the written consent of the original counterparty.
Following the letter of the law, hedge funds should have been careful to obtain such consent from what is known as the remaining party before assigning contracts. But given the volume of business done with hedge funds and the earnings derived from them,...
