Sebi allows AIFs to participate in credit default swap deals

Capital markets regulator Sebi has allowed alternative investment funds (AIFs) to participate in the Credit Default Swaps (CDS) market to facilitate the deepening of the domestic corporate bond segment. The new norms, which will come into force with immediate effect, allow business entities to hedge risks associated with the bonds market. CDS is a specific kind of counter-party agreement which allows the transfer of third party credit risk from one party to another. Under the new norm, Category-I and Category-II AIFs can buy CDS on underlying investment in debt securities only for the purpose of hedging, while Category-III AIFs can purchase CDS for hedging or otherwise, within permissible leverage.