Nine out of 10 bankers and investors in the European high-yield market are worried the misuse of private information is fuelling improper trading and market abuse in leveraged loans, credit default swaps and high-yield bonds, according to a survey.

Research by Financial News for the European High Yield Association showed 90% of practitioners are concerned insider trading is escalating because of opacity and poor disclosure in the booming private loan market. One head of high-yield capital markets in London said: "It's a serious concern, especially as we reach a point where people are getting more and more worried about leverage multiples and changes in the market. There are investors that were once solely public securities investors but are moving up the capital structure and engaging privately in leverage loans, collateralised debt obligations and collateralised loan obligations." Fears have risen as more debt finance is being raised in Europe's private loan markets, which are unregulated and lack transparency, letting private equity sponsors secure cash faster from new investors, such as hedge funds. Another high-yield bond banker said: "It's hard to quantify but we see situations where some investors are not treating information as confidentially as they should." Investors in public, regulated markets, such as bonds, are concerned they are at a disadvantage because they do not have access to private information, said the survey. The UK Financial Services Authority has warned high-yield bond investors it is illegal to trade in public markets if they hold confidential loan information. The regulator said trading in the public market when in possession of private information was illegal. Last month, it began monitoring the market for credit default swaps – derivatives that provide a kind of insurance against non-payment of corporate debt – to check trading patterns. But although the FSA has warned it will act against investors using private information to trade public securities, it does not plan to extend its remit to leverage loans or high-yield bonds. One leveraged finance banker in London, said: "If the regulator acts, the market has failed itself." Bond market practitioners are pressing for the loan industry to resolve the market abuse problem, including forcing companies to reveal loan details to a wider pool of bondholders. The European High Yield Association has called on the Loan Market Association, which polices the loan markets, to push for disclosure of senior loan documentation to bondholders and news of covenant waivers, amendments and defaults. This disclosure is widespread in the US. A meeting this week between the associations will address the issue. Craig Abouchar, bond manager at Insight Investments, part of the UK's HBOS group and a vice-chairman of the European High Yield Association, said: "We realise this is an institutional over-the-counter market with the onus from a regulatory perspective to regulate ourselves and devise a common set of standards for disclosure purposes that investors are happy with. "We need to deal with this issue by improving transparency, ensuring the disclosure of bank loan documents and ensuring companies understand their obligations, vis-à-vis securities holders, to inform them in a timely and public manner of material events within the company."