Commerzbank drops out of credit derivatives and G-15 dealer group

Commerzbank has pulled out of the credit derivatives market following the integration of Dresdner Kleinwort and a refocusing of its investment banking business model, according to dealers.

The change became apparent when over-the-counter derivatives market participants delivered their latest set of operational commitments to regulators on March 1. While a group of 15 major dealers, known as the G-15, and nine buy-side firms had signed up to the previous set of commitments in June 2009, the number of dealers dropped to 14 in the latest letter.

Dresdner had signed up to the commitments since late 2006, and, following the completion of its integration with Commerzbank in May 2009, the merged bank was represented at the latest face-to-face meeting with regulators at the Federal Reserve Bank of New York on January 14.

But, according to banking sources, Commerzbank has discontinued all market-making in credit trading after the merger and consequently agreed with regulators to reduce its role in the G-15, though it is still committed to meeting broader industry targets beyond credit.

Although the bank remains active in equity derivatives and interest rate derivatives, some dealers have speculated the withdrawal from the working group signals a more general scaling back of operations.

I assume they don't consider themselves to be a major dealer anymore - if they were still very active in rates and equities, then I'd be surprised if Bafin and the Fed would have let them slip away like that

"I assume it doesn't consider itself to be a major dealer any more – if it was still active in rates and equities, I'd be surprised if [German financial regulator] BaFin and the Fed would have let it slip away like that," says one European dealer and a member of the now-depleted G-15.

Although the New York Fed confirmed Commerzbank had withdrawn from the group because of its discontinuation of credit trading, it declined to comment further. Both Commerzbank itself and BaFin also declined to comment.

As well as the removal of Commerzbank, the March 1 letter also included changes to the buy-side portion of the signatory list, with the removal of London-based hedge fund GLG Partners and the addition of New York-based asset management firm BlackRock. The arrival of BlackRock, which acquired Barclays Global Investors at the end of 2009, is a positive development for the industry representation in the group, says the European dealer.

"The major dealers have been in on this from the word go, but the buy side has come in progressively – we're very happy to see them become more involved," he says.