DTCC launches weekly CDS update

The Depository Trust and Clearing Corporation (DTCC), the largest derivatives clearing house in the US, released its first weekly snapshot of the credit derivatives market yesterday.

DTCC will post on its website data including the gross and net notional values of outstanding credit default swap (CDS) contracts registered in its Trade Information Warehouse for the top 1000 single name reference entities, as well as index and tranche trades. The data does not reflect current market prices of contracts, nor does it include ‘uncertain’ or ‘unconfirmed’ trades.

As of October 31, the gross notional of all credit products confirmed through the warehouse stood at $33.6 trillion from 2.5 million contracts. Of that, $15.4 trillion are single name CDS contracts; $14.8 trillion are credit default index trades and $3.4 trillion are credit default tranche trades.

The aggregated net notional of the single name CDS trades – which reflects the maximum funds transfers between net sellers and net buyers of protection required upon the occurrence of a credit event – is currently $1.8 trillion, according to DTCC.

The biggest reference entity on the corporate side is GMAC – the former financial services arm of General Motors – on which $100.6 billion of CDS protection has been sold. The Republic of Turkey is the largest sovereign entity, on which $188.6 billion of CDSs are currently outstanding.

DTCC says the move to publish weekly data is intended to “address market concerns about transparency”. Regulators in particular have criticised the over-the-counter market derivatives market for lacking transparency. Until DTCC’s initiative, the timeliest data available came from the International Swaps and Derivatives Association’s market surveys, conducted twice a year.

In a research note published today, CreditSights analyst Brian Yelvington said DTCC’s statistics reveal that risks in the CDS market are significant, but not as large as feared.

“The CDS market has weathered the storm of a large counterparty and reference entity failure [Lehman Brothers] with much more bark than bite, and this data is indicative of its ability to do so in future, particularly when buttressed with the added benefit of a centralised counterparty,” said Yelvington.

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