In early October of 2008, Ken Griffin and his partners-in-crime at the Chicago Mercantile Exchange had a dream. It was a dream of bringing “stability and transparency” to the credit-default swap market in such a way that would “reduce much of the systematic risk inherent” in those crazy derivatives.
That December, the CMDX clearinghouse/trading platform got the go ahead from the Commodity Futures Trading Commission. In March of this year, it received its final regulatory approvals.
And, if it’s lucky, for Hannukah, it may actually get to clear a trade or two.
cds
For those in the ‘CDS are weapons of financial mass destruction’ camp, today is not your day. Due to the prevalence of major industrialized countries putting their fiscal problems on their credit cards and turning themselves into emerging market nations, Markit plans to launch four news indices focused on sovereign default risk. While the sovereign CDS market used to be focused on places like Brazil and Russia, in a few months you’ll be able to trade the solvency of the G7 and Western Europe – assuming you can find somebody to go long.
New indices to trade in sovereign default risk [FT]
Bloomberg is spinning this as “even bigger than Lehman,” but that seems backwards to me. Shouldn’t it be “Lehman CDS payouts nearly as large as entire country meltdown CDS fallout” ?
The auction was the first of three being held this week to settle credit-default swaps after the Icelandic government seized its three biggest banks because they couldn’t raise short-term funding. The cost to sellers of contracts linked to Landsbanki, Kaupthing Bank hf and Glitnir Banki hf’s may be $7 billion, compared with the $5.2 billion for settling bankrupt Lehman Brothers Holdings Inc.
Landsbanki Swap Sellers to Pay $1.7 Billion to Honor Contracts [Bloomberg]
So other than totally cratering and taking with it all its equity holders, Lehman is doing just fine today. The CDS settlement, you know, the one everyone was worried about, turned out to pan out nicely. Or so far it has. Kudos to Felix Salmon for having called that one nicely.
Fears about Lehman CDS deadline seen as overstated [Reuters]
I doubt there could be a much more direct indicator of how absolutely abysmal things are than New York and federal prosecutors cooperating on anything. Perhaps its when the New York Times calls Credit Default Swaps, the dangerous new focus of this probing probe, “the insurancelike securities.”
To help you navigate the difficult waters of Credit Default Swap investigations in the months to come, and the reporting thereon, we have put together a CDS Scrabble/YahtzeeTM scoring guide.
1. Scoring (Generally): Use a score pad or piece of paper to keep a tally of each journalist’s score, entering it after each article. The score value of each word is indicated by an entry in the word score log. Words not in the log are worth 0 points.
2. Word Values: The score for each turn is the sum of the scorable word values in each sentence(s) formed or modified in that article plus the additional points obtained from placing multiple scoring words in single sentences.
Examples (after the jump):
Reuters Group CDS spreads.
Source: CMA DataVision
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
