The State and Outlook of the Credit Default Market: Changed but Unbowed
Report Summary
The State and Outlook of the Credit Default Market: Changed but Unbowed
Despite challenges, the business and economic conditions underlying the CDS market will remain compelling for both dealers and non-dealers.
Boston, MA, October 7, 2009 – A new report from Aite Group, LLC examines new developments in the credit default swap (CDS) industry and considers challenges that must be addressed. It also reviews pending regulations and what these regulations could mean to the CDS market.
Much attention has been focused on credit default swaps since the collapse of Bear Stearns in March 2008, when systemic risk became part of the national discussion on financial risk. Since then, market participants and regulators have realized that the risks inherent in CDS transactions - counterparty and liquidity risks - can no longer be ignored. Given that the primary issuance markets of auction rate securities (ARS) and collateralized debt obligations (CDOs) have since vanished, some surmise that the CDS market will be similarly diminished. Given the state of the market, Aite Group argues that the business and economic conditions underlying the CDS market remain compelling for both dealers and non-dealers hoping to continue trading this OTC derivative.
"While the CDS market will remain fundamentally intact, it will have to surmount challenges brought about by increased regulation," says John Jay, senior analyst with Aite Group and author of this report. "The cost of trading CDSs will invariably increase, and volumes will be lower than they have been historically. In the end, systemic and company-specific CDS-related risks will improve, even as the CDS industry moves to develop new contract types."
This 17-page Impact Note contains nine figures and two tables. Clients of Aite Group's Institutional Securities & Investments service can download the report.