Credit Default Swaps and Insurance

In the last edition of the Journal of International Banking Law and Regulation (2011, Vol. 26(3), pp. 128–135), there is my article entitled “Credit Default Swaps and Insurance: Against the Potts Opinion”.

This may sound like a boring little technical piece. Yet those who know about the CDS market and the famous Potts Opinion will realize that the material in this article is, in a word, explosive. If I’m right, there are thousands of contracts out there worth who-knows-how-much that potentially are invalid and perhaps illegal. And losers might be able claim their money back. (I consider it unlikely that this will lead to new rulings on the topic, as cases like these would almost certainly be settled out of court.)

Now, it is not my intention to claim that the CDS market should necessarily be regulated according to insurance law principles. What I’m arguing is that under current English law, insurance law is broadly applicable to at least many CDS contracts. If that conclusion is to be avoided, specific legislation seems to be necessary.

You can download a pre-publication version of the article from SSRN or directly here:

Credit Default Swaps and Insurance: Against the Potts Opinion



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