Financial Market Trade Associations Unveil Principles and Recom-mendations Addressing the Handling of Material Nonpublic Informa-tion in the Credit Derivatives and Debt Securities Markets

           New York, NY - A group of financial market trade associations representing a wide range of credit market participants today unveiled an exposure draft of principles and recommendations regarding the handling and use of material nonpublic informa-tion when managing credit risk. The group, known as the Joint Market Practices Fo-rum, has released the exposure draft for industry review and comment by June 16. The document is intended as a set of guidelines for use by financial institutions that use se-curities and securities-based swaps to manage and hedge their credit portfolios. Mate-rial nonpublic information ("MNPI") is information that is not available to the public and that can be considered important in making investment decisions.

In recent years, firms that originate or acquire loans or otherwise have credit exposures to particular companies have turned increasingly to the credit derivatives and securities markets to help manage risk. This has generated efficiencies for both lenders and borrowers and has created new investment opportunities. At the same time, how-ever, the practice has raised questions about the appropriate handling and use of MNPI in the securities and credit derivatives markets. These new recommendations are in-tended to help ensure that information obtained by 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 and personnel within the same institution.

Credit market participants already have sophisticated policies in place for han-dling sensitive information. However, it is recognized that even the appearance of in-adequate controls and procedures can be damaging.

"The perception of inadequate information controls or inappropriate conduct by market participants has the potential to erode confidence in the integrity of the credit markets, as well as hurt liquidity and efficiency," said Michael D. Robinson, executive director of the International Association of Credit Portfolio Managers. "These stan-dards and procedures can be used by market participants, as they review and refine their policies, to ensure that their business practices and regulatory 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. Its goal is to address issues of common concern to its member firms.

"Our common effort is to ensure that this important market continues to grow, that the credit markets remain liquid and efficient, and that market participants have the appropriate procedures in place to fully comply with securities laws and regulations," said Micah S. Green, president of The Bond Market Association. "These recommenda-tions will further the promotion of fair and competitive markets in which firms may engage in effective credit portfolio management activities."

"The efforts of the associations provide an opportunity for credit market par-ticipants to exchange ideas on important business and legal issues. The participants, who bring different industry perspectives, have focused on promoting responsible, effi-cient markets through the development of these principles and recommendations," said Robert G. Pickel, executive director and chief executive officer of the International Swaps and Derivatives Association.

The Statement of Principles recommends that credit market participants con-sider including certain key elements in their information controls, tailoring these ap-proaches to a firm's particular business activities, organizational structure and portfolio composition.

A series of special considerations and related guidance are provided in the ex-posure draft, based on whether a firm has chosen to organize its credit portfolio man-agement 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 non-public information. Those on the public side are typically involved in securities sales and trading activities and should not have access to material nonpublic information. The exposure draft provides guidance for designing appropriate information controls for both the public and the private sides.

"The trade associations believe it is important to reassure market participants that the innovative risk management techniques and instruments that have emerged in the securities and credit derivatives markets are used responsibly and will continue to contribute to the stability and efficiency of the financial markets," said Jane Summers, general counsel of The Loan Syndications and Trading Association.

After reviewing comments received on the exposure draft, the associations in-volved expect to issue a final version of the principles and recommendations. A copy of the exposure draft is available from any of the associations' respective Web sites: www.bondmarkets.com, www.iacpm.org, www.isda.org, www.lsta.org.

The Bond Market Association represents securities firms and banks that under-write, trade and sell debt securities, both domestically and internationally. The Interna-tional Association of Credit Portfolio Managers is a professional association dedicated to the advancement of Credit Portfolio Management. The International Swaps and De-rivatives Association is the global trade association representing leading participants in the privately negotiated derivatives industry. The Loan Syndications and Trading As-sociation 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 confi-dence for investors in corporate loans.