贵金属投资技术分析英文版(40).pptVIP

Credit Default Swaps (cont.) None of the cash flows from the CDS directly involves Company ABC, but it is their bond that is the subject of the CDS contract. A CDS is essentially an insurance policy to hedge against default Because there is no requirement to own the actual underlying security or loan when entering into this type of contract, many CDS credit protection buyers engage in this transaction purely for speculative purposes The CDS market came under regulatory scrutiny because of its massive size, lack of regulation and potential to permit insider-trading activity * L10: Financing and Trading of Investment Banking Credit Default Swaps (cont.) The cost of CDS sometimes increases considerably in the weeks prior to the announcement of a corporate takeover by a private equity fund Upon completion of a leveraged buyout, the target company’s credit rating generally deteriorates because the buyout is financed in large part by leveraging the target’s balance sheet. Because this increases the riskiness of the company’s outstanding bonds, the result is an increase in CDS pricing relative to these bonds During 2007 and 2008, prior to announcement of a number of acquisitions by private equity funds, CDS pricing for the target company increased substantially, suggesting that CDS credit protection buyers became aware of the acquisition before it was publicly announced Speculators evidently purchased CDS on private equity target companies before the announcement and then sold CDS after the announcement, creating a substantial profit * L10: Financing and Trading of Investment Banking Proprietary Trading Proprietary traders are non-client related traders who trade solely for the benefit of their firm They have no responsibility to balance their profitability interests with the interests of clients of the firm, and therefore can be considered competitors to these clients At some investment banks, they are covered by sales professionals within the same firm and are consid