European Commission regulators say that 13 investment banks, the International Swaps and Derivatives Association (Isda) and Markit breached antitrust rules by colluding to prevent exchanges from entering the credit derivatives business.
The formal European Commission charge-sheet, running to almost 400 pages, alleges collusion to ensure the insurance-like contracts remained an “over-the-counter” (OTC) product – preserving the banks’ lucrative role as middlemen.
Between 2006 and 2009, Deutsche Börse and the Chicago Mercantile Exchange tried to enter the credit derivatives business, turning to the Isda and Markit to obtain necessary licenses for data and index benchmarks. Continue reading “ISDA and MARKIT charged by EC”
Regulators of several countries, including the United States Commodity Futures Trading Commission (CFTC), have
introduced or proposed rules requiring clearing of over-the-counter (OTC) derivatives through central counterparties. Clearing requirements in turn affect margin requirements, which are one key mechanism used by parties to mitigate counterparty risk. Although clearing rules help shield collateral from the insolvency of the secured party, they also may substantially increase financial and operational costs for the users of cleared derivatives because of the higher margin delivery requirements applicable to such transactions. Continue reading “MARGIN COSTS OF OTC SWAP”
Jon, posting at the OTC space, does a nice job of setting out the size of various markets. In particular he uses gross
market value rather than notional for OTCs, which is a (much) more useful measure. The results are interesting:
Scarcely a day goes by without a press article or speech mentioning in its introduction the “more $600+ trillion OTC derivatives market”. Whilst this may liven up the subject, this unnecessarily inflames concern. Here’s why.
What are the figures? The quoted figures come from the Bank for International Settlements (BIS) half yearly reporting on OTC derivatives market activity – published on their website. The latest is: BIS OTC 2012 H1 which notes $639 trillion open notional. Continue reading “How Big is OTC”
What’s a credit event? It’s a difficult question. Dealbreaker is exercised on this, or more specifically on the issues with CDS protection holders getting paid on some unusual credit-event-like happenings:
- You buy CDS that is supposed to pay off if something goes wrong with the bonds.
- Something goes wrong with the bonds, insofar as they poof into some weird garbage-y thing or assortment of garbage-y things.
Continue reading “Credit Event”