CFTC Concerned with “Opportunistic Strategies” in Credit Derivatives

The Commodities Futures Trading Commission (CFTC) held its most recent podcast/webcast CFTC Talks and this one focused on these so-called “opportunistic strategies”.

In this case, this is a euphemism for certain market manipulation.

“The continued pursuit of these opportunistic strategies raises a series of concerns.” CFTC Chair Christopher Giancarlo stated. “It’s well known that both the CDS (credit default swaps) market and the credit index swap market are significantly lower than 2010….One reason for the reduction in trading liquidity may be the use of these opportunistic strategies.”

Credit default swaps are the most well-known of credit derivatives and it is “a financial derivative or contract that allows an investor to ‘swap’ or offset his or her credit risk with that of another investor.” According to the website, Investopedia.

The CFTC was so concerned with these strategies that along with the Securities and Exchange Commission and the Financial Conduct Authority (FCA) issued a joint statement last month.


“The continued pursuit of various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events,’ may adversely affect the integrity, confidence and reputation of the credit derivatives markets, as well as markets more generally.  These opportunistic strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns.”

“As a result, today the Chairmen and Chief Executive of our respective agencies announce that the agencies will make collaborative efforts to prioritize the exploration of avenues, including industry input which will address these concerns and foster transparency, accountability, integrity, good conduct and investor protection in these markets.  These collaborative efforts would not, of course, preclude other appropriate actions by our respective agencies or authority.”

Christopher Goodenow, CFTC’s Market Analyst for its Division of Market Oversight, described two of these strategies during the podcast.

“The most straightforward of these strategies is either to induce a default or alter the timing of a default.” Goodenow stated.