New York, NY – The Joint Market Practices Forum, a group of four financial market trade associations representing a wide range of credit market participants, today released a final version of its principles and recommendations regarding the handling and use of material nonpublic information when managing credit risk. The document is intended as a set of guidelines for use by financial institutions that use securities and securities-based swaps to manage and hedge their credit portfolios. The Forum issued an exposure draft of these recommendations in May 2003, and considered comments on that draft in producing the final version.
The Associations have individually adopted these recommendations and are now issuing them on a joint basis to market participants to inform the ongoing efforts to manage these issues in an appropriate fashion. The recommendations have been circulated broadly to the Associations’ members and have been posted to their respective Web sites.
The recommendations are intended to help ensure that material nonpublic information obtained by financial services firms in the ordinary course of their lending or other relationships with a company is not inappropriately shared with or used by other business units or personnel within the same institution that transact in the securities and credit derivative markets. Material nonpublic information is information that is not available to the public and that can be considered important in making investment decisions.
The Statement of Principles recommends that credit market participants consider including certain key elements in their information controls, tailoring these approaches to a firm’s particular business activities, and also provides a series of special considerations and related guidance based on whether a firm has chosen to organize its credit portfolio management activities on the “private side” or the “public side” of an information wall. Individuals on the private side are typically involved in loan origination or advisory activities and, through the normal course of business, may have access to material nonpublic information. Those on the public side are typically involved in securities sales and trading activities and should not have access to material nonpublic information.
While credit market participants already have detailed policies in place for handling sensitive information, the Forum believes that even the appearance of inadequate controls and procedures can be damaging and erode confidence in the integrity of the credit markets. The principles and guidelines being offered now can be used by market participants as they review and refine their own in-house policies to ensure that their business practices and compliance are at the highest level.
The Forum is an ad hoc, collaborative effort of The Bond Market Association, the International Association of Credit Portfolio Managers, the International Swaps and Derivatives Association, and The Loan Syndications and Trading Association.
The Bond Market Association represents securities firms and banks that underwrite, trade and sell debt securities, in the U.S. and globally. The International Association of Credit Portfolio Managers is a professional association dedicated to the advancement of Credit Portfolio Management. The International Swaps and Derivatives Association is the global trade association representing leading participants in the privately negotiated derivatives industry. The Loan Syndications and Trading Association is the trade association for the corporate loan market, dedicated to advancing the interests of the marketplace as a whole and promoting the highest degree of confidence for investors in corporate loans.