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Hedge Funds Are Looking to Fix Credit-Swap Indexes 

June 9, 2015

Sridhar Natarajan, Bloomberg Businessweek

Hedge-fund firms Anchorage Capital Group and BlueMountain Capital Management are leading investors pushing to overhaul credit derivatives indexes that they say have become too disconnected from the market they’re supposed to track, according to four people with knowledge of the discussions.

The problem has emerged because index rules require them to be composed of companies with the most actively traded credit-default swaps contracts. Since the financial crisis, trading in swaps has plunged while issuance of corporate debt soared. Swaps tied to recent issuers failed to develop in tandem, leaving the indexes divorced from the underlying market.

The investor group, which also includes BlackRock Inc., met recently with index owner Markit Ltd. at Anchorage’s New York office to discuss changing composition rules, two of the people said. The proposal is being backed by some of the biggest credit-swaps dealers, including JPMorgan Chase & Co., Goldman Sachs Group Inc., Barclays Plc and Citigroup Inc., said the people, who asked not to be identified because the discussions are private.

“Everyone sees the elephant in the room and that needs to be addressed,” Robert Douglass, chief operating officer of U.S. corporate debt trading at Barclays, said of efforts to revive trading in the credit-swaps market. “There are a lot of things going on in the industry to improve the liquidity in the product.”

Read more: BloombergBusiness

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