Where are the Swaps Cops when you need them?

Unusual trading in a relatively new corner of the bond market illustrates how the rise of increasingly sophisticated financial instruments is potentially outpacing the ability of regulators to police them.

In recent months, there have been spikes in the prices of so-called credit-default swaps, which are a kind of default insurance on debt, popular among banks, hedge funds and other big investors. In some prominent cases recently -- including deals involving hospital operator HCA Inc. and energy company Anadarko Petroleum Corp. -- prices of the swaps climbed in the weeks before news of major acquisitions became public.

That raises the possibility that some traders might have acted on inside information. There is no evidence at this point that improper inside information was leaked. Proving insider trading has always been a challenge for regulators, even in traditional securities. But the recent activities raise questions as to which regulator, if any, is policing the market, and how they will go about it as these exotic instruments spread.

Copy this link onto your browser lick and read on. Trust us, this is just getting good..

http://online.wsj.com/article/SB115698777269950171.html?mod=mkts_main_todays_mkts_tac