Who doesn’t like a good conspiracy theory? Or, umm, even a really bad one?
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Isn’t it a problem if bank regulators depend, seemingly exclusively, on the banks themselves for information? Weren’t trade information warehouses, such as DTCC’s for credit derivatives, built in part to give regulators a bird’s eye view of markets? If so, why the hell does it sound like they aren’t being used?
JPMorgan management have put their hands up since the announcement of $2bn of losses, effectively saying, ‘yeah, whoops, we totally messed that one up. Buck stops here. We’re looking into preventing that from ever happening again. We’ve learned that no matter how good a division’s past performance, one simply cannot ever be complacent.’ They are taking their (very, very sizable) share of the blame. Read more
Whale-watching in the credit default swap market has become something of a pastime for pundits and market participants alike.
For the uninitiated, the short version of this story is that many believe that a trader (aka “The London Whale”, or “Voldemort”) in JP Morgan’s Chief Investment Office (CIO) has been amassing such large positions in various credit indices that it is potentially: Read more
We’re sure there’s a drinking game in here somewhere, given that Wednesday’s headlines about new records for credit default swap indices will be usable many a time over the coming weeks as the sovereign crisis lurches along. And despite any doubts you may be harbouring about this particular market, it is simply refusing to die. CDS on France have shown a particular resilience and were the most actively traded contracts last week.
But first, some of those records that you’ll be reading about on Wednesday
and Thursday and Friday: Read more
The Depository Trust and Clearing Corporation, and representatives of trade association Isda, have stated on several occasions that 98 per cent of all credit derivatives outstanding are recorded in the Trade Information Warehouse that the former organisation runs. For an initiative that is all about transparency, it struck us as odd that it’s so difficult to find out how they determine that number.
FT Alphaville’s theory, outlined on Friday, was that it came from some of the surveys which measure the overall size of the credit derivatives market. This turned out not to be true. Our readers helpfully provided some of their own theories too. Read more
It’s a claim that is often made by representatives of the International Swaps and Derivatives Association and of The Depository Trust and Clearing Corporation that 98 per cent of all credit derivatives outstanding are recorded in the latter organisation’s Trade Information Warehouse.
It’s a comfort to know that data on nearly all such derivatives are stored in a single place, where the public can glance into the normally opaque over-the-counter world and regulators can have a proper dig if they want to. Read more
It’s the data you’ve all been waiting for. It’s from DTCC and it covers sovereign CDS. Has the market shrunk, given that whatever is going on in Greece hasn’t yet met the definition of a credit event?
Erm, turns out it hasn’t. Here’s the data on what the total outstanding contracts are as of Friday: Read more
Now that a debate is brewing over survival probability of the European sovereign CDS market itself, FT Alphaville thought it’d be a good idea to look at some more recent trends in order to try to discern where the demand for these financial products has come from.
While Greece’s net notional has fallen off a cliff this past year, not least because of how illiquid and meddled with it is, other sovereign CDS have seen rather marked increases in interest. Read more
The final HSBC/Markit Economics’ China PMI for September came out today with a reading that was above the flash estimate, but still at a level that signals contraction. Also evident was a worrying increase in factory inputs inflation, putting China’s central bank in an uncomfortable position in the face of a global slowdown.
Into the breach comes CDS referencing China! If you are appropriately sceptical, you’ll rightly question the quality of this particular, controversial metric. Before we get into the guts of it, let’s take stock of the situation. Read more
The Markit iTraxx SovX CEEMEA contains a basket of 15 sovereigns from Central and Eastern Europe as well as the Middle East. Italy’s CDS spread is now wider than all but one of them – Ukraine.
FT Alphaville has referred in previous posts to the emerging global settlement failure issue. We’d now like to address the curious case of settlement fail patterns across the repo universe.
As we have already noted, what started off as a Treasury market issue moved quickly into the Mortgage Backed Security (MBS) market, as and when authorities introduced failure penalties in the former. Read more
Markit credit analyst Lisa Pollack investigates why 2007 is still haunting a number of CDS index products when it comes to off-the-run volumes.
According to ISDA, there were $62,000bn of credit default swaps (CDS) at the end of 2007. What exactly is this number though? First, it’s gross, not net. If one desk at a dealer is a buyer of $10m of CDS protection and another desk at the same dealer is a seller of $10m of CDS protection, the dealer as a whole has a net position of zero. In order to be perfectly fungible, the two CDS contracts have to have the same attributes, meaning reference entity, tier, maturity, currency, and restructuring clause. Read more
The world of credit default swaps = one huge, amorphous, indefinable ocean of trillions worth of contracts, right?
How ’bout a dwindling, drying, puddle, instead? Read more
All hail the Depository Trust and Clearing Corporation
The DTCC has provided an updated and more in depth version of its market “snapshot” of CDS trade — six-month data for the top 1,000 CDS single-named reference entities. It’s aimed at “informing” market participants and regulators which names might have sufficient liquidity to be cleared through a central counterparty. Read more
The DTCC has published what it calls a “snapshot” of the CDS market, but it’s actually more like a “time-lapse movie”, FT Alphaville writes. We now have nine months of data, covering just about every single-name CDS traded since last June. Read more
A transatlantic row that flared up in the wake of the Greek debt crisis over the lack of disclosure to regulators of credit market activity has pushed the new body in charge of collecting global trading data to provide more information to financial watchdogs. Regulators from around the globe will now be able to obtain breakdowns of trading activity in credit default swaps, including the identity of the investors, after a U-turn by the DTCC.
Here’s an obvious thing that would help the SEC root out fraud in the $54,000bn credit derivatives market — having access to real-time derivatives data.
But the SEC has apparently been without access to such data, according to the Wednesday congressional testimony of Henry Hu, the regulator’s new head of risk, strategy and financial innovation. From Securities Industry News: Read more
The Depository Trust & Clearing Corporation, the US securities post-trade group, is open to renewing talks with LCH.Clearnet, Europe’s largest clearing house, about reviving plans for a merger between the two clearing houses, Don Donahue, DTCC chief executive, told the FT. Only a month ago, DTCC said it was ending a preliminary agreement with LCH.Clearnet for a deal to create the world’s largest equities and derivatives clearing and settlement. The UK-based clearer is also in talks with a consortium of 11 banks and Icap, which wants to acquire LCH.Clearnet.
The DTCC, in an effort to clear the air around derivatives, has published a list of all the reference entities in its trade information warehouse.
You can see the list here. Below, though, are a few choice names we’ve selected out of interest. The first number is the gross notional value of CDS contracts outstanding. The second number is the notional net value: the number of one sided positions. Read more
Credit junkies, rejoice, for the DTCC has bestowed upon thee an abundance of data.Looking for the top 1000 CDS reference entities by gross or net notional? Granted. Aggregate single-name contracts by year of scheduled termination date more your thing? Sorted.
Paul Kedrosky has already been mining this
dataporn database, and has posted a list of the top ten registered CDS by net notional exposure. Conclusion? Forget AIG and Lehman Brothers. It’s market participants’ massive exposure to Italy and Spain that should have would-be regulators concerned. Read more
Cometh the hour, cometh the merger. With politicians and regulators on both sides of the Atlantic fretting about the risks that built up in the world financial system – particularly in the pipework that links parties to trades – the takeover of one plumber, LCH.Clearnet, by another, The Depository Trust & Clearing Corporation ought to be welcome.
Charlie McCreevy, the European commissioner in charge of the single market, last week challenged participants in the over-the-counter derivatives market to come up with solutions to the threat of a blow-up in the opaque area of credit default swaps. Coincidentally he was due to meet some of those participants in Brussels yesterday [WEDNESDAY], as the DTCC-LCH proposal was being unveiled in London. Read more
From the DTCC website:
22 October 2008 – The Depository Trust & Clearing Corporation (DTCC) and LCH.Clearnet Group (LCH.Clearnet) today jointly announce that they have signed non-binding heads of terms regarding the proposed merger of the two companies. The merger proposal aims to create the world’s leading clearing house, which would operate a user-owned, user-governed model, with LCH.Clearnet moving to an at-cost based structure comparable to DTCC’s within three years. As a result of the transaction, LCH.Clearnet shareholders would receive total consideration of up to €739 million (€10 a share), the majority of which would be funded through LCH.Clearnet’s revenue. Read more
Or at least, the world of electronic trade processing.
The announcement hit inboxes this morning, although there’d been a whiff of a deal in the making for weeks. Two identical press releases, one each from Markit and the Depositary Trust & Clearing Corp: DTCC AND MARKIT TO FORM STRATEGIC OTC DERIVATIVES PARTNERSHIP. Read more
Efforts to tackle the risk surrounding privately negotiated credit derivatives will take a step forward Thursday when 11 of the world’s biggest investment banks announce the creation of the first central clearer for the opaque contracts by September. The absence of a central clearer has made such contracts risky because there is no guarantee that parties will pay out. This systemic risk has fuelled the global credit crunch, prompting regulators to step up pressure on banks. Thursday’s proposal follows an agreement between The Clearing Corporation (also known as CCorp) and the Depository Trust and Clearing Corporation. CCorp’s backers – including Goldman Sachs, Citigroup, JPMorgan, Bear Stearns and Morgan Stanley – will establish a guarantee fund to cover potential failures.
Europe’s largest clearing house, LCH.Clearnet, and The Depository Trust & Clearing Corporation of the US have held talks about a possible combination that would create the first post-trade services group straddling the Atlantic. The talks come as Europe is struggling to streamline its fragmented market for clearing and settlement services. Any merger with LCH.Clearnet – likely structured as a takeover by the DTCC – would create by far the largest clearing and settlement group in Europe.