[they] could be used to leave a creditor hoping that a company would go into bankruptcy, or allow someone to control a shareholder vote even though his financial interests are contrary to those of shareholders.He noted however, that the Securities Exchange Commission was moving toward closer regulation of CDSs that would, among other things, limit or remove these incentives.
Not so in Canada, were these instruments are largely unregulated, as a brief from McCarthy Tetrault recently described:
Ontario is still considering its proposed Rule 91-504 dealing with OTC derivatives. However, none of the Canadian provinces have rules in place, nor has any province publicly announced that it is considering rules, which require centralized clearing of OTC derivatives. Furthermore, none of those rules or legislation deals with the extensive recordkeeping and reporting requirements that are being proposed by the US Treasury Department. . . .
Many commentators point to the largely unregulated OTC derivatives market, in particular, credit default swaps, as being the catalyst for the current global credit problems. Whether one agrees or disagrees with that view, it appears that all interested parties would welcome the regulation of OTC derivatives on some level. . . .
However, the ‘devil is in the details,’ and it remains to be seen whether the proposed framework will be effective in minimizing systemic risk, and whether Canadian provinces will use the US regulatory framework as a model for OTC derivatives regulation in Canada. One can expect additional proposals and discussion in the weeks ahead.When our finance minister is finished patting himself on the back for his handling of the recession, he might turn his attention to this. It would be refreshing if the opposition parties did as well.
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