On 31 July 2008, the Joint Forum (whose parent bodies are the International Organization of Securities Commissions, the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors) published a report on developments in the credit risk transfer (CRT) market since 2005. The CRT market includes products such as credit default swaps, collateralised debt obligations (CDOs) referencing asset-backed securities (ABSs) and collateralised loan obligations (CLOs).

The report makes a number of recommendations for CRT market participants and supervisors. The following recommendations are of particular interest to finance lawyers:

1) The implementation of strict compliance rules by market participants to address potential conflicts of interest and to prevent inappropriate use of material non-public information.

2) Working towards a cash settlement protocol with a view to eliminating delivery problems that may occur if credit default swap contracts exceed available deliverable instruments.

3) The introduction of automated trade novations and rigorous performance standards in processing trades.

4) Being aware of the potential of credit derivatives and positions held through other CRT products to affect corporate workouts including, in particular, out-of-court restructurings before an event of default has occurred.

For more information on credit default swaps, see Practice note, Credit derivatives: overview (UK): Credit default swaps.

For more information on CDOs, ABSs and CLOs, see Practice note, Types of securitisation: Loan pools and securities based assets.