Regulatory Scrutiny of Manufactured Credit Events

On June 24, 2019, the U.S. Securities and Exchange Commission, the U.S. Commodity Futures Trading Commission, and the U.K.’s Financial Conduct Authority issued a joint statement regarding the practice of “various opportunistic strategies in the credit derivatives markets, including but not limited to those that have been referred to as ‘manufactured credit events.’” This extremely rare joint statement by the three regulators indicates close scrutiny of any apparently self-serving actions that market participants might take with respect to derivatives positions. No definitive case has yet been brought, jointly or independently, by the regulators in this area, suggesting they may be seeking the right set of facts upon which to take precedential action.