Question on Illinois Bonds CDS

N

nutmeg

(Not sure if this is the right forum)

Why?

"Firms must disclose whether their “net position is short or long.”

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In the same legislation that raised the debt ceiling, lawmakers included a provision that requires underwriters working with the state to disclose what bets they have made through credit default swaps against a potential state default. State House Speaker Michael Madigan, D-Chicago, modeled the requirements after action taken by California Treasurer Bill Lockyer.

Illinois has had the highest CDS rate among states. It has ranged in recent months from just under 300 basis points to more than 340 basis points.

Under the legislation that has been signed by Quinn, underwriters must disclose their cumulative notional volume of the state’s CDS positions and trades and their outstanding gross and net notional amount of Illinois CDS over the last three months.

Firms must disclose whether their “net position is short or long.” They must also disclose whether they have released any publicly available research or marketing reports that reference state CDS and submit the reports.

http://www.bondbuyer.com/issues/120_12/illinois_Debt_cap-1022262-1.html
 
For the same reason firms are required to report their futures positions I guess - Market transparency. Dunno if that can actually be a possibility without an exchange
 
Quote from Martinghoul:

Why what?
More...

My question is what are lawmakers hoping to change? Are they trying to prevent underwriters from going short?

Are lawmakers trying to legislate/manipulate underwriters positions?

if you do business with us, you can't go short?

Are they trying to influence confidence?

[underwriters must disclose their cumulative notional volume of the state’s CDS positions and trades and their outstanding gross and net notional amount of Illinois CDS over the last three months]
 
Well, I think this what happens every time to politicians/officials who find their countries/states in trouble. Their first instinctive reaction is to locate some speculators to blame for attacking their sovereign. So, naturally, as a first step they would always try to implement some measures against naked short-selling, which is what they're doing. Only after this is ineffective do the officials realise that their problems are caused by genuine investors unhappy about their sovereign's credit. We've seen it all in Europe a few times now.
 
Quote from nutmeg:

My question is what are lawmakers hoping to change? Are they trying to prevent underwriters from going short?

Are lawmakers trying to legislate/manipulate underwriters positions?

if you do business with us, you can't go short?

Are they trying to influence confidence?

[underwriters must disclose their cumulative notional volume of the state’s CDS positions and trades and their outstanding gross and net notional amount of Illinois CDS over the last three months]
More...
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Look like they want to see if the insurance bet will cause the state to pay (more) interest to the bond holders.


""Banks are always saying that by permitting hedging of risk, it will improve liquidity for bonds. But there is no evidence of people with actual exposure to muni bonds being a substantial part of the CDS market," Dresslar told Dow Jones Newswires. "In fact, we believe the evidence points to the contrary--that most of the trading is done by speculators who have no skin in the game."

http://online.wsj.com/article/BT-CO-20101216-716777.html
 
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