Very interesting-CDS report courtesy of Donald R. van Deventer Kamakura Corporation

Non-Bank Corporate Credit Default Swap Trading Volume for the 155 Weeks Ended June 28, 2013
8/20/2013 11:01 PM
This note is the last in a series analyzing the trading volume in single name credit default swaps for the 155 weeks ended June 28, 2013. In this analysis, we focus on trading in 961 non-bank corporate reference names. We find that only one corporate averaged more than five non-dealer trades per day over the 155 week period studied.

The ten most heavily traded non-bank corporate reference names over the period ended June 28, 2013 were led by MBIA Insurance Corporation:






CLEAR CHANNEL COMMUNICATIONS, INC. [Subsidiary of Clear Channel Outdoor Holdings, Inc. (CCO)]





The conclusions of this study have major implications for the profitability of the major credit default swap dealers and their ability to tie loan and bond pricing to credit default swap quotes and traded levels. The major single name credit default swap dealers include the following firms:

Bank of America (BAC)

Barclays (BCS)

BNP Paribas (BNPZY.OB)

Citigroup (C)

Credit Suisse (CS)

Deutsche Bank (DB)

Goldman Sachs (GS)

JPMorgan Chase (JP)


Morgan Stanley (MS)

Royal Bank of Scotland (RBS)


In this note, we analyze credit default swap trading volume for the 961 non-bank corporate reference names among the 1,144 reference names for which CDS trades were reported by the Depository Trust & Clearing Corporation during the 155 week period ending June 28, 2013. The weekly trade information is from the Section IV reports from DTCC. The data is described this way in the DTCC document “Explanation of Trade Information Warehouse Data” (May, 2011):

“Section IV (Weekly Transaction Activity) provides weekly activity where market participants were engaging in market risk transfer activity. The transaction types include new trades between two parties, a termination of an existing transaction, or the assignment of an existing transaction to a third party. Section IV excludes transactions which did not result in a change in the market risk position of the market participants, and are not market activity. For example, central counterparty clearing, and portfolio compression both terminate existing transactions and re-book new transactions or amend existing transactions. These transactions still maintain the same risk profile and consequently are not included as ‘market risk transfer activity.’”

We again confirm that our emphasis is not on gross trading volume. As of July 5, 2013, dealer-dealer trading volume made up 75.16% of all single name credit default swaps that were live in the DTCC trade warehouse at that point in time. It would be nearly costless for dealers to inflate gross trading volume by trading among themselves. Instead, we focus on “end user” trading where at least one of the parties to a trade is not a dealer, as defined by the DTCC. Accordingly, we make the following adjustments to the weekly number of trades reported by DTCC for each non-bank corporate reference name:

We divide each weekly number of trades by 5 to convert weekly trading volume to an average daily volume for that week.

From that gross daily average number of trades, we classify 75.16% of trades as “dealer-dealer” trades, using the average “dealer-dealer” share of trades in the DTCC trade warehouse as of July 05, 2013.

The remaining 24.84% is classified as daily average “non-dealer” volume, the focus of the reporting below.

Daily Non-Dealer Trading Volume for Non-Bank Corporate Reference Names

Of the 1,144 reference names for which DTCC reported credit default swap trades in the 155 week period ending June 28, 2013, 961 were non-bank corporations. We first analyze the 155 week averages for the 961 non-bank corporations. The daily average non-dealer trading volume, calculated as described above, was distributed as follows:

The conclusions that can be drawn from this table are summarized here:

70.9% of the non-bank corporations had trading volume that averaged less than one non-dealer CDS contract per day over the 155 weeks ending June 28, 2013.

92.8% of the non-bank corporations had trading volume that averaged less than two non-dealer CDS contracts per day over the 155 weeks ending June 28, 2013.

None of the 961 non-bank corporations had trading volume that averaged more than 8 non-dealer trades per day in the 155 weeks ended June 28, 2013.

The average number of non-dealer trades per day over the period studied was 0.79 trades.

The median number of non-dealer trades per day over the period studied was 0.54 trades.

We conclude that, like the 1,144 reference names overall, trading volume for the 961 non-bank corporations with CDS traded during the 155 weeks ending June 28, 2013 is minimal when analyzed on a non-dealer daily average basis.

Analyzing Trading Volume in Aggregate

We now analyze all 155 weeks of data, not just the average over that period, for all 961 non-bank corporations for which DTCC reported non-zero trade volume. There were 148,955 = 961 x 155 observations on CDS trading volume for these non-bank corporations, and there were no trades for 36,012 observations, 24.2% of the total. The distribution of non-dealer trades per day over these 148,955 observations is summarized in the following chart:

One can draw the following conclusions over 148,955 weekly observations:

75.17% of the observations showed 1 non-dealer trade per day or less.

98.30% of the observations showed 5 non-dealer trades per day or less.

99.85% of the observations showed 10 non-dealer trades per day or less.

Only 0.15% of the observations were for more than 10 non-dealer trades per day.

The highest volume week featured 959 gross trades per week, 191.8 gross trades per day, and 47.6 average non-dealer trades per day. This volume was during the week ended May 10, 2013 for MBIA Insurance Corporation.

As we stated above, this confirms that there is minimal trading volume in the 961 non-bank corporations on which CDS trades were reported by DTCC in the 155 weeks ended June 28, 2013. The 25 non-bank corporates with the highest daily average non-dealer trading volume are listed here:

Weekly gross trading volume for MBIA Insurance Corporation is shown below:

Detailed Information on CDS Trading Volume by Individual Reference Name

Kamakura is pleased to provide the listing of trading volume by non-bank corporate reference name to those Kamakura clients and friends of the firm who e-mail and certify that they have read and agreed to the DTCC terms of use agreement:

Donald R. van Deventer
Kamakura Corporation
Honolulu, August 21, 2013

© Donald R. van Deventer, 2013. All rights reserved



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Javelin OTC Derivatives Establishes Presence in Telx’s Chicago Data Center

Javelin OTC Derivatives Establishes Presence in Telx’s Chicago Data Center

Telx, a leading provider of global interconnectivity, cloud enablement services and datacenter solutions, today announced at SIFMA Tech 2013 that Javelin Capital Markets, an OTC derivatives execution platform, has leveraged Telx’s network & interconnection rich Cloud Connection Center, “CHI1” at 350 East Cermak Road, Chicago, Illinois, providing Javelin with access to Telx’s extensive Financial Services community. As a colocation and interconnection client in Telx’s strategically located data center in downtown Chicago, Javelin can now offer Telx’s financial community high-performance connectivity to derivatives execution platforms for Interest Rate Swaps and Credit Default Swaps. Javelin offers both anonymous electronic and voice-hybrid methodologies for trade execution.

Newly formed Swaps Execution Facilities (SEFs), that have emerged as aspects of Dodd-Frank become implemented, are incorporating their services in secure data center environments. Low-latency connectivity is a critical component for the OTC Derivatives market linking SEFs and Central Counterparty Clearing (CCPs). With CCPs being located in Chicago, the proximity of Telx’s CHI1 facility at 350 East Cermak provides financial customers with high-performance and flexible connectivity to Javelin as well as to other SEF engines from a single location.

“As aspects of Dodd-Frank become cemented in the financial community, the need to establish SEFs in secure environments is a crucial step for our eventual classification as a Swap Exchange Facility,” said Michael Black, MD of Infrastructure of Javelin. “Telx’s ability to provide us with access in their premier Chicago facility, and their proximity to the clearing venues, swaps execution facilities, and buy-side participants put us in a strong market-leading position to service current and future clients.”

“We are excited to have Javelin join the expanding Telx financial ecosystem in our CHI1 facility. Javelin’s secure exchange platform with a state of the art user interface is well positioned in the rapidly changing OTC Derivatives market,” said Shawn Kaplan, general manager of Financial Services for Telx. “In recent months we have seen an increasing number of trading systems turn to Telx and our CHI1 facility, most recently with the announcement of Sky Road joining Telx’s financial community. Javelin and other industry leading financial institutions at 350 East Cermak benefit by connecting with other financial institutions in the facility, which allows them to offer their full suite of services with flexible connectivity to current and future clients.”

Telx’s CHI1 facility, located in the South Loop of the Chicago Central Business District, provides customers with the financial eco-system at 350 Cermak, one of the leading financial eco-systems in the world. As the operators of the “Meet-Me-Room,” and one of the largest colocation providers at the CHI1 facility at 350 Cermak, Telx provides industry leading data center and connectivity services for the global financial community.

Attendees at SIFMA Tech 2013 in New York City can register to attend Telx’s grand opening event of its new flagship data center, NJR3 in Clifton, New Jersey on June 19, 2013 from 3:00 p.m. to 7:00 p.m. Round-trip transportation will be provided by Telx for all registered guests. The event will feature a keynote address by NFL Legend Phil Simms, along with public remarks Clifton Mayor James Anzaldi, State Senator Nia Gill, and Telx’s Executive Vice President of Engineering and Construction Michael Terlizzi. Cocktails and refreshments will be served, and tours of the new data center will be given.


MarketAxess adds CDS data to BondTicker

Trading platform and technology provider MarketAxess has added live intra-day data for credit default swaps (CDS) to its BondTicker data service.

via Pocket June 04, 2013 at 07:12PM

New Terms Weighed on Default Swaps

via Pocket May 16, 2013 at 06:40PM

S&P, TrueEX Team Up on CDS Futures

via Pocket April 11, 2013 at 06:49PM

Pro-Cyclicality, CVA and CCDS courtesy of theOTCspace

Pro-Cyclicality, CVA and CCDS
There’s been some recent news surrounding EU legislators exempting corporates, sovereigns and pension funds from mandatory CVA capital requirements under CRD IV (see article). Arguments for these institutions’ exemptions apparently stem from their current exemption from EMIR’s mandatory clearing requirements.

This has understandably led to fresh concerns over pro-cyclicality, which were first raised when sovereign counterparties were originally exempt from central clearing. To briefly summarise the issue:

A bilateral counterparty’s credit spreads increase
Therefore portfolio CVA increases
CVA exposure is dynamically hedged using CDS, and therefore more CDS protection is purchased referencing the counterparty
This increase in demand for protection further widens the counterparty’s credit spreads…
And the cycle continues.

However, such fears over pro-cyclicality can be alleviated through the purchase of a contingent CDS (CCDS) contract. CCDS contracts behave in a similar manner to vanilla CDS contracts. However, instead of referencing a notional of corporate or sovereign debt, CCDS can reference the market value of a portfolio of derivatives.

Hedging CVA using CDS is an example of dynamic hedging, whereby a portfolio must be rebalanced to reflect its changing sensitivity to credit spreads. CCDS contracts, however, are static hedges against CVA. Once the CCDS contract has been purchased, barring any changes to the composition of the reference portfolio, the CVA is perfectly hedged. This means that widening counterparty credit spreads don’t need to be met with further CDS purchases, and therefore the downward spiral is broken.

But, to quote The Real Hustle, “If it seems too good to be true, it probably is”. CCDS contracts are, by their nature, highly bespoke, and as a result they can incur high fees. In addition, CCDS contracts are themselves bilateral transactions which must be collateralised to mitigate counterparty credit risk. Punitive BCBS guidelines for margining uncleared trades will make this a costly option. The central clearing of CCDS would certainly be a very far-off, if not impossible, goal. The pricing of the contingent leg of the CCDS alone is as complex as the calculation of portfolio CVA itself, and depending on the size of a portfolio this would require significant computational power (and a huge investment in IT infrastructure) in order to run models that capture complex risk-factors such as wrong-way risk.

Despite these complications, if regulators and market participants are truly concerned about the potential for pro-cyclicality when trading with CVA-exempt institutions, then CCDS could be the potential solution– provided that the regulatory and technological infrastructure is put in place to make it work.

SEF protocols central to market choice

Swap execution facilities (SEFs) may be the cornerstone of G-20-inspired Dodd-Frank Act rules on OTC derivatives, but how they operate and whether they will attract sufficient liquidity remains unclear.

via Pocket March 26, 2013 at 06:29PM

CFTC’s Chilton proposes compromise on SEF initiatives

A leading member of the U.S. Commodity Futures Trading Commission (CFTC) recently proposed a new method that market participants looking to clear swaps transactions can use to solicit prices from swap execution facilities (SEFs).

via Pocket March 22, 2013 at 06:49PM

ISDA Plans Biggest Overhaul to Credit Derivatives Since 2003

The International Swaps & Derivatives Association is planning the biggest overhaul of the $24 trillion credit derivatives market since 2003.

via Pocket March 06, 2013 at 09:18PM

Yonhap Infomax feeds new CDS service with SuperDerivatives’ award-winning market data

Yonhap Infomax, the financial news and market intelligence arm of Yonhap News Agency, South Korea’s largest news provider and semi-official wire service, has announced the purchase of indicative CDS data from SuperDerivatives, the global leader for cloud-based real-time market data, derivatives t

via Pocket March 04, 2013 at 07:08PM

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