The UK Financial Services Authority (FSA) has picked Markit to supply pricing information on credit derivatives.London-based Markit will provide the regulator with pricing benchmarks on credit default swaps (CDS) and access to its reference entity database. The FSA will use the information for "research and regulatory compliance purposes," Markit said.
In particular, the FSA could use the CDS market to provide advance warning of problems at the underlying companies, said Penny Davenport, Markit's director of product management. "The CDS market is a very effective barometer of a company’s financial health and acts as an early warning signal of trouble brewing," she added.
The FSA, however, is also set to use the data to monitor the activities of hedge funds and investment banks, with specific emphasis on ensuring there is no conflict of interest between their lending activities and credit derivatives trades.
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