Wall Street Wants to Reform CDS. Here's Why That'll Be Tough
- Manufactured defaults aren’t the only trades to draw scrutiny
- Panel that governs the market has faced controversy itself
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Some of Wall Street’s biggest players are proposing a fix that they hope will reform a $10 trillion credit derivatives market that has become a hotbed of ruthless side deals and alleged manipulation. It may not be so simple.
The plan announced Wednesday is the market’s most ambitious effort yet to address the controversy that erupted last year after a refinancing deal involving homebuilder Hovnanian Enterprises Inc. GSO Capital Partners, a unit of Blackstone Group LP, agreed to lend money to Hovnanian on the condition that the company default on a small portion of its bonds, in an effort to trigger a payout on credit-default swaps (GSO ultimately settled the matter with a rival hedge fund that sued over the deal).