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From: TFF9/22/2008 4:13:55 PM
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New York Will Regulate Some Credit-Default Swaps

By Shannon D. Harrington and Christine Richard

Sept. 22 (Bloomberg) -- New York State will begin to regulate part of the $62 trillion market for credit-default swaps, Governor David Paterson said.

The state will treat contracts in which the buyer also owns the underlying security as insurance, Paterson said today in a news release. All such contracts would have to be purchased from regulated bond insurance companies, said David Neustadt, a spokesman for New York State Insurance Superintendent Eric Dinallo. Contracts in which investors buy protection against a default but don't own the actual security won't be treated as insurance, according to the release.

``The absence of regulatory oversight is the principal cause of the Wall Street meltdown we are currently witnessing,'' Paterson said in the statement. ``I urge the federal government to follow New York's lead once again by regulating the rest of the credit-default swap market.''

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt or to hedge against losses. They pay the buyer face value in exchange for the underlying securities should the company fail to adhere to its debt agreements.
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