Tuesday, November 4, 2008

Let the sun shine on credit derivatives

Starting today the Depository Trust & Clearing Corp. (DTCC) will publish data on CDS contracts which are still traded over the counter. This will bring much needed transparency to a huge market that has cast its shadow over the financial system in the last 12 month. The market is so opaque that nobody knows the actual size of it. The notional value of outstanding contracts varies from $35 trillion to $62 trillion. Some representatives of the industry claim misinformation for discrediting the credit derivative market, but policy makers are wary of such claims after the financial system had to be bailed out with public money to avoid a financial meltdown similar to the Great Depression.

from Bloomberg:
The Depository Trust & Clearing Corp. will publish details of the top 1,000 credit-default swaps today, bowing to regulatory pressure for more transparency in the $47 trillion market.

The data from the DTCC, which operates a central registry, will for the first time offer a clearer picture of the amount wagered on the creditworthiness of the world's companies and governments.

The industry has stepped up efforts to counter critics among U.S. lawmakers and regulators who say the lack of transparency in the market exacerbated the financial turmoil. The collapse of Lehman Brothers Holdings Inc. contributed to a decline in financial markets last month because no one knew how many contracts were outstanding on the securities firm, or who had held them. Estimates ranged as high as $400 billion, though the actual amount turned out to be $72 billion, the DTCC said.

The industry should ``get the word out about the small size of these risks compared to the notional amounts on which the contracts are based,'' said Mark Brickell, chief executive officer of Blackbird Holdings Inc., which provides an electronic trading system for derivatives, and former chairman of the International Swaps and Derivatives Association.

After subtracting redundant trades, only $5.2 billion had to actually change hands, DTCC said last month in what was its first release of data from the warehouse.
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source: Depository Trust to Provide Credit-Default Swaps Data

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