The FSA has published a report by the Senior Supervisors Group (SSG) entitled Observations on management of recent credit default swap credit events (the Report). The SSG comprises of the Canadian Office of the Superintendent of Financial Institutions, the French Banking Commission, the German Federal Financial Supervisory Authority, the Japanese Financial Services Agency, the Swiss Financial Market Supervisory Authority, the FSA and, in the United States, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the Federal Reserve.

The Report summarises a review that the SSG conducted in December 2008 to assess how firms manage their credit default swap (CDS) activities and positions following a credit event. The observations in the Report are based on discussions with senior management of selected institutions, including major dealers, buy-side firms, service providers, and an industry association.

The main conclusions in the Report are:

  • Effective credit event management depends upon certainty and full participation.
  • Access to accurate CDS counterparty exposure data is essential to efficient credit event processing.
  • Engagement of all market participants in decision making with regard to all phases of the credit event management process will help promote a broader market consensus and encourage more equitable market prices.
  • Formalising market-wide and internal procedures will reduce the operational risk associated with auctions and help market participants address unexpected developments.
  • Investment by firms in the necessary operational infrastructure and training resources for credit event management will assure efficiency, accuracy, and timeliness of CDS settlement.

View SSG report on management of recent credit default swap credit events, (PDF 214KB), 9 March 2009