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Insider trading rumours hit credit

Abuse of information prompts worries about integrity in credit markets.

What would trigger 12 securities industry trade associations to issue a joint statement reaffirming their commitment to the promotion of fair and competitive markets? Specifically they point out that the inappropriate use of material non-public information is not to be tolerated.

Rumours of trading on insider information in the credit markets are rife. They have intensified ever since institutions such as hedge funds started getting involved in loan markets with accompanying concerns about the sturdiness of their Chinese walls. And if current rumours are to be believed, UK regulator the Financial Services Authority is investigating a leading bank for trading credit default swaps when in possession of highly sensitive information.

A big part of the concerns arise because of the gap between supposedly private information in the loan market and the public securities sector (bonds and CDS). And the problem is set to escalate with the development of loan CDS where the underlying asset is inherently private.

The associations say that the perception of misuse could erode confidence in the integrity, as well as the liquidity and efficiency, of the securities and derivatives markets on which their members rely. And they argue that it is important to maintain a focus on this area given the fast-changing nature of the complex financial markets.

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