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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Electronic bonds platform nears completion

Electronic bonds platform nears completion

An industry initiative to create an electronic bond trading platform led by Deutsche Bank and supported by key buy and sell-side firms may take shape as early as October, the executive behind the plan has said.

Dominic Holland, director of credit and e-commerce sales at Deutsche Bank, said the platform has continued to gain support from tier one and two banks in the US and Europe, alongside keen interest from asset managers. Holland ruled out a 2013 launch, but said final details of the platform could emerge by October.

“Discussions around the platform are continuing to advance and recently have focused on the governance and protocols that will underpin its functionality,” Holland told He confirmed the platform would begin in Europe, but will aim to become a global fixed income trading platform.

“We have support from tier one banks and asset managers who both see great value in the hub-and-spoke model we anticipate the platform will have, which will involve IOIs being sent to a central matching engine,” he said.

“We believe this model will suit trading in the less liquid fixed income instruments and also large trades in highly liquid bonds.”

The choice of an order book to execute trades was driven in part by concerns that information leakage had restricted the willingness of asset managers to trade fixed income products. Currently, buy-side firms typically call a number of brokers to request a quote in the bonds they want to trade, increasing the risk of market impact.

In March, the initiative had gained the backing of 10 brokers, including some of the largest investment banks, in addition to more than 10 large asset managers. Holland said on-going conversations with buy-side firms were “very positive”, and all were keen to keep abreast of developments.

The initiative was sparked by Basel III rules that will force banks to hold greater capital to support their bond inventories and therefore reduce the ability to trade on principal for buy-side clients.

“As Basel III requirements take hold in Europe and US firms ready themselves for implementation, we have seen renewed interest from sell-side counterparts in Q2 to create an industry-wide platform to facilitate the expected shift from single-dealer platforms,” Holland said.

In July, the US Federal Reserve approved the Basel III rules that were formed in the wake of the 2008 financial crisis. Holland added that this had prompted greater interest from US banks looking for a multi-dealer trading platform for fixed income instruments.

Income Partners receives RQFII license from CSRC

Income Partners receives RQFII license from CSRC
Tue, 13/08/2013 – 16:15

Fixed income specialist Income Partners Asset Management (HK) Limited has been granted an RMB Qualified Foreign Institutional Investors (RQFII) asset management license from the China Securities Regulatory Commission (CSRC).

Income Partners has been an innovator in RMB and Asian fixed income investments. In 2010, Income Partners was one of the first asset managers to launch offshore CNH bond funds: the Income Partners Renminbi Investment Grade Fund and the Income Partners Renminbi High Yield Bond Fund.

Emil Nguy, managing partner and co-founder of Income Partners, says: “It has always been the firm’s goal to provide our clients and investors the broadest investment opportunity set, to fulfil their investment return requirements. We are delighted that the CSRC has granted us the opportunity to invest in the China onshore bond market. Our investment teams based in Beijing and Hong Kong have a strong long term track record investing in Chinese companies – this is a natural extension of the investment capabilities we can offer to our clients. Ultimately we believe the China onshore bond market will complete the Asian bond market story – the Chinese bond market is already the third largest in the world, with the current economic conditions, investors have the option of participating in the China growth story via both equities and bonds.”

Shen Tan, managing director and head of relationship management, says: “This is the reason why I joined Income Partners – this is a growing asset management company, and more importantly we are constantly innovating and investors will recognize the unique investment capabilities the firm has. We can provide investors a complete set of investment tools to access the Asian credit market, and our track record speaks for itself. We are confident we can replicate the strong performances our offshore CNH bond funds to our new RQFII bond fund.”


ASIFMA calls for bond market reform as China endures turbulence


Interactive Data And DelphX Team Up To Provide Real-Time Pricing To Fixed Income Market


via Pocket June 15, 2013 at 07:10PM

Interactive Data’s BondEdge Solutions Integrates Andrew Davidson & Co’s Prepayment and Mortgage…

Addition of AD&Co Models and Related Data for Mortgage-Backed Securities Enhances Analytics and Reporting Capabilities of BondEdge BondEdge Solutions, an Interactive Data company and leading provider of fixed income portfolio management software, today announced a collaboration with Andrew Davidson

via Pocket June 12, 2013 at 07:11PM

Carolina Capital Markets, Inc. – Fixed Income Trading – Soft Dollars – Client Commission Arrangement – Bond Calculator

CCM’s clearing agent is BB&T. CCM’s outside legal counsel for SEC & FINRA regulations is Pickard & Djinis LLP.

via Pocket June 10, 2013 at 07:21PM

The Hidden ‘Gotcha’ in the SEF Rules – special entity’[SE] (as that term is defined in Section 4s(h)(2)(C) of the Act

The Hidden ‘Gotcha’ in the SEF Rules‘gotcha’-in-the-sef-rules?utm_source=TabbFORUM+Alerts&utm_campaign=4860873ebe-UA-12160392-1&utm_medium=email&utm_term=0_29f4b8f8f1-4860873ebe-271568421

An overlooked detail in the swap dealer definition rule approved by the CFTC will be a real headache for some market participants.
With all the analysis of the SEF rules that were approved by the CFTC last week, one little “gotcha” appears to have been overlooked. It doesn’t apply to everyone, but it will be a real headache for some market participants.

The problem began about a year ago, when the CFTC and SEC approved the rule specifying who must register as a swap dealer (SD). That rule identified four trading patterns as a starting point, any of which gets the ball rolling. One pattern is: “Regularly enters into swaps with counterparties as an ordinary course of business for its own account,” which covers a lot of firms.

Next, the rule sets a de minimis threshold for annual trading volume. What most people focused on was the $8 billion of notional volume, going down to $3 billion over time; but the end of that sentence added another threshold: “$25 million with regard to swaps in which the counterparty is a ‘special entity’[SE] (as that term is defined in Section 4s(h)(2)(C) of the Act.”

Of course, this was no problem for firms that have already registered as SDs, but it was a big problem for general market participants. Soon after the dealer definition rule was approved, I pointed this anomaly out to the CFTC staff. They recognized the problem and assured me that it would be dealt with in the forthcoming SEF rules. So last week I went through the final rule, and found no mention of SEs at all, and certainly not of the troubling de minimis language. So I contacted the CFTC and pointed out the problem. Here’s what they said to me:

There may be a few options that you can pursue if you believe that the Commission should take action to address the issue. One option may be to petition DSIO for no-action relief under Commission regulation 140.99. For example, you could request that DSIO provide relief against the $25 million de minimis threshold with special entities for transactions done on SEFs and DCMs. Any no-action request should go to Gary Barnett, who is the Director of DSIO. Another option may be to petition the Commission to amend the swap dealer rule under Commission regulation 13.2. These are only a few options, there may be others.”


It would appear that petitioning the CFTC to amend the swap dealer definition rule is the best alternative. I have done that (see letter to Director Gary Barnett, below), but others who would be affected should as well.

The address is:

Mr. Gary Barnett, Director
Division of Swap Dealer and Intermediary Oversight
Commodity Futures Trading Commission
Three Lafayette Center
1155 21stSt. NW
Washington, DC 20581

Although the CFTC has exempted trades conducted on a SEF or DCM from many of its rules, it neglected to do so in this case. What that meant was that any market participant that satisfied the pattern criterion and happened to do a trade larger than $25 million with a special entity on a SEF would be stuck having to register as a SD. When you consider that asset managers might execute large trades for their ERISA clients on SEFs, and their counterparties wouldn’t know about it until the trades were allocated, you begin to see the dangers. In fact, an ERISA account could wind up being both a SD and a SE at the same time!

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