SEC subpoenas CDS brokers on trades -sources
11/21 03:48 PM
NEW YORK, Nov 21 (Reuters) - The Securities and Exchange Commission has sent subpoenas to interdealer credit derivative brokers relating to the trading of credit default swaps on financial companies in September, sources said.
The move follows a request from New York Attorney General Andrew Cuomo in the past weeks, also relating to the trading of financial CDS in September, the month that Lehman Brothers (LEHMQ:$0.0305,$-0.0055,-15.28%) failed.
Credit default swaps are used to insure against the risk of a borrower defaulting on their debt or to speculate on their credit quality.
Regulators are probing the $47 trillion, privately traded market for evidence of potential price manipulation, which they believe could have enhanced worries about financial companies and contributed to the failure of companies including Lehman.
In September, the SEC said that hedge fund managers, broker-dealers and big investors with significant trading activity in financial firms or positions in credit default swaps would be required to disclose those positions to the SEC and provide other information.
The regulator in September ordered more than two dozen big investors and broker dealers to hand over data about trading activity in American International Group (AIG:$1.58,00$0.14,009.72%) , Lehman Brothers, Goldman Sachs (GS:$53.82,00$1.82,003.50%) , Merrill Lynch (MER:$8.25,00$0.29,003.64%) , Morgan Stanley (MS:$9.8800,$0.6800,7.39%) and Washington Mutual <WM.N>, said a source briefed on the matter.
The same source said the SEC is looking at trading activity in the securities of those firms between Sept. 1 and Sept. 19, as well as short positions in the specified companies.
The exact details of the subpoenas could not be determined.
A SEC spokesman on Friday declined to comment beyond the regulator's September announcement.
Jamie Cawley, chief executive at broker IDX Capital, confirmed the firm has received a subpoena from the SEC and that it is in the process of responding.
"We encourage and embrace any effort from the regulatory authorities to bring greater transparency and fair dealing to the marketplace," he said.
Spokespeople at brokers Phoenix Partners Group, Creditex and ICAP Plc declined comment. Officials at Tullett Prebon Plc, BGC Partners and Standard Credit Securities were not immediately available for comment. (Reporting by Karen Brettell; Editing by Leslie Adler)
