Tuesday, April 7, 2009

PIMCO: Just lucky, I guess

One of the most important aspects of the ISDA's recent overhaul of the credit default swaps (CDS) market — known in the market as the "Big Bang" — is the creation of a Credit Derivatives Determinations Committee. Starting tomorrow, the Determinations Committee will make binding decisions on a range of issues, the most important of which include whether a "credit event" has occurred, and which obligations will constitute "deliverable obligations" in a settlement auction. Representation on the Determinations Committee is obviously important, and to combat the fact perception that it's heavily biased toward the major dealer banks, the ISDA agreed to give the buy-side a voice on the Determinations Committee. The 5 buy-side Committee members are supposedly "selected at random" — you know, to ensure fairness. In what I'm sure was a tightly controlled, double blind-like random selection, do you know who the ISDA just so happened to pick as a buy-side Committee member? That's right, the biggest bond player in the world, PIMCO! I'm sure PIMCO's selection had nothing to do with the fact that it's one of the new ISDA board members, or that it's the 800-pound gorilla in the bond markets. Nope, it was just the luck of the draw.

4 comments:

Blank Xavier said...

> is the creation of a Credit
> Derivatives Determinations
> Committee

Unh. The CDS market is now screwed.

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