• Banks

    Derivatives Panel Says Argentina Way More Default-y Than Espírito Santo Is Bankrupt

    Whatever’s going on with Banco Espírito Santo—the collapse, the restructuring, the splitting into a good […]

    / Aug 7, 2014 at 5:50 PM
  • News

    Surprise: Argentina Has A Caveat!

    The uniquely recalcitrant debtor is happy—eager, even—to chat with Paul Singer and friends about resolving […]

    / Jun 26, 2014 at 12:48 PM
  • EU antitrust czar Joaquin Almunia. I guess they don't call them "czars" in Europe though.


    Banks Preferred Profitable CDS Business Over Less Profitable One

    The thing about antitrust law is that it’s so understandable. Not in the sense that […]

    / Jul 1, 2013 at 3:03 PM
  • News

    ISDAt Wrong?

    The European Union will be very cross if it finds out that the International Swaps […]

    / Mar 26, 2013 at 5:42 PM
  • Lions Gate, Mycenae. Have we done this one before? Running out of Greek sites that I've been to that aren't just, like, holes in the ground.


    CDS Market Almost Ready For Another Greek Default

    Last week ISDA, who are in charge of credit default swaps, circulated some proposed changes […]

    / Mar 11, 2013 at 4:15 PM
  • News

    Bill Gross Knows An Illegal Wrestling Move When He’s Seen One

    “It’s sort of like a half-nelson or even a full-nelson in wrestling terms being applied […]

    / Mar 9, 2012 at 4:32 PM
  • News

    So Maybe Greek CDS Will Be More Than Fine?

    Gaaaaaaaaaaaaaaaah Greece.

    Okay so all systems appear to be go on the Greek debt exchange, which means its time to decide What This Means, and, I just. Really. Greece. Come on. All I want is to talk about 13D reporting requirements, and now I have to pay attention to Portugal? No. Just no.*

    Still here is arguably a fun factoid:

    On Wednesday, Swiss bank UBS AG started quoting a “gray market” in new Greek sovereign bonds … using as a guide details of the debt swap Greece has put on the table for private investors to accept until Thursday evening. The “bid” price for a batch of future Greek bonds due in 2042, or the highest price the dealer was willing to pay, was around 15 cents on the dollar; the “offer” price, or the most the dealer was willing to sell at, was 17 cents on the dollar, the first person said. … The prices quoted by UBS imply that losses private creditors to Greece will take are more like 79% of face value, not the original haircut of 70-75% many had expected.

    Yeah but. If you believe this horrible CDS mechanics stuff that various people including me have been yammering about for weeks – here is the best explanation – that means that if for some reason you had the foresight to be long Greek bonds and hold CDS against them you’d end up with a package worth (1) 21 on the bonds and (2) 83 on the CDS (assuming that the 17 offer for the 2042 bonds represents a real price for the cheapest-to-deliver new bond in the Greek auction) for (3) 104 total which is (4) more than par, so you win this particular game, yay. Which you were at risk of losing – a week ago one of our fearless commenters spotted the longest new bonds at 25ish vs. 24ish for the old-bond-y package, for a total of 99 for the hedged holder – losing 1 point versus par.**

    / Mar 8, 2012 at 4:54 PM
  • Temple of Zeus at Olympus


    So Maybe Greek CDS Won’t Be Fine, Who Knows, I Give Up

    ISDA decided today that there has been no credit event for purposes of Greek CDS. Obvs! And by “obvs!” I mean what I said the other day, which is that with 100% certainty there’s been no credit event yet, but with 100% certainty there will be, so everyone should just chill out.

    Except that it seems like that last part may be wrong. So go ahead and panic.

    I used to make convertible bonds and some of my time was spent answering questions about what happened to things upon Events. The most popular was: what happens after a merger? If you have a convertible that converts into 10 shares of XYZ stock, but now XYZ is being acquired and each share of XYZ is being acquired for $30 in cash and 4.5 shares of PQR stock and a pony – what happens to the convertible? And the answer I would give usually started with “don’t trouble your pretty little head about it.” Like, it’s fine: you have a convertible that converts into 10 Things, and before the merger each Thing was an XYZ share, and after each Thing is exactly what an XYZ share transformed into, so you convert into $300 and 45 PQR shares and 10 ponies. It just works because it has to work. Economic interests follow without interruption from changes in form; derivative securities poof into derivatives of things that the underlying poofs into. There is no arbitrage!

    That assumption is central to doing any sort of derivative work, and it spoiled me a bit. Sometimes people would come up with more complicated scenarios involving dividends, multiple-step transactions, weird splits and spinoffs and sales, etc. etc. And I would generally start from the bias “it has to work, so I am sure the document written in the way that works.” Where “works” means “the economics and intent of the trade are preserved after the change in form.” But of course the document was written by humans, often specifically me, and those humans, often including me, are fallible. So there may well be documents from my former line of work that don’t “work” in the sense that an issuer could do some structural tricks that would screw holders out of their economics – where the derivative doesn’t follow the underlying everywhere it might go. These tricks are unlikely enough that I don’t lose sleep over them. You can’t predict everything.

    I sort of assumed that Greek CDS also had to just work but here is Felix Salmon at Reuters saying no. Lisa Pollack at FT Alphaville said something similar a week ago but I could not fathom that she meant it so I read it to mean something else. But she means it, and Felix does too. Go read it but the basic gist of this theory is:

    / Mar 1, 2012 at 2:05 PM
  • News

    Consumer Protection Agency Takes A Page From ISDA’s Playabook

    The Consumer Financial Protection Bureau, the socialist conspiracy politburo set up to allow Elizabeth Warren […]

    / Dec 7, 2011 at 6:44 PM
  • News

    Things That May Not Blow Up The World: Derivatives?

    As Marc Faber prepares for war and Europe tries to figure out Italy, derivatives trade […]

    / Aug 5, 2011 at 1:48 PM