PPF should not ignore CDSs, Isda says

The PPF is in the middle of a move from a flat-rate levy on pension funds to a levy based on the risk involved in each fund's portfolio. The move has been welcomed by fund managers, who condemned the flat rate plan as subsidising risky funds at the expense of safe ones.

However, Isda is concerned that, when the PPF starts to assess funds, it will ignore the protection provided by holding credit default swaps, "a situation which we would consider to be anomalous and unnecessarily constraining, both for potential purchasers of protection and for potential providers of it", Isda commented today.

Isda added that it understood that the fund was not opposed to CDS use in principle, but believed that "technical issues" would prevent their use in risk assessments. The association disputed this and called for the fund to meet Isda to improve its understanding of the securities.

Even if CDSs are eventually allowed, any delay could harm the product's standing, Isda pointed out, adding: "We firmly believe that credit derivatives can and should be accommodated within the risk-based levy regime at the earliest occasion."