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Inside The Secretive Circle That Rules A $14 Trillion Market

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Fifteen of the biggest players in the $14 trillion market for credit insurance are also the referees. Firms such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. wrote the rules, are the dominant buyers and sellers and, ultimately, help decide winners and losers. When question comes up, the 15 firms meet on a conference call to decide whether a default has triggered a payout of the bond insurance, called a credit-default swap. Once the 15 firms decide that a default has taken place, they effectively determine how much money will change hands. Pressure is growing inside and outside what’s called the determinations committee to tackle conflicts of interest. CDS may also be susceptible to collusion or, worse, outright manipulation. Only the biggest CDS traders are seated on the panel, conflicts are not only tolerated but unavoidable.

“You’ve got a self-regulatory body that has handed the authority over an entire market to those folks who have the greatest self-interest and have no prohibition for putting their interests ahead of the broader market.” On its website, ISDA says conflicts are mitigated by having both buyers and sellers on the panel.

The problem is there’s no ability for an independent body to determine whether or not the process is fair, which ISDA says it is.


They says its system is transparent.

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