Credit default swap market transparency
CDSs were considered to be at least partly to blame for the subprime crisis and the financial crisis that followed it. – In spring 2009, the International Swaps and Derivates Association therefore published precise descriptions of the occurrence of a credit event. In the event of a dispute, a committee decides whether a credit event occurs in the event of insolvency, default or debt restructuring. – A pricing model provided to market participants by J.P. Morgan, the world’s leading CDS dealer, has helped to largely standardize the valuation of CDSs. – Several exchanges have begun trading CDSs. This allows CDS contracts to be cleared through a central counterparty. This prevents the counterparty from being affected by the insolvency of a CDS trading partner and the financial difficulties from spreading to the entire CDS market worldwide. – However, the problem of credit default speculation has not yet been solved. As before, someone can buy credit insurance on a company or a country, even though he is not a creditor of the company or this country, he holds a “naked position”, as one also says. Because payment on the credit insurance becomes due in the event of insolvency or sovereign default, the holders of the CDS have little reason to advocate reorganization or debt restructuring. Their interests are therefore fundamentally opposed to those of the actual creditors. – See credit default swap, naked. Credit default swap speculation, nodal. – Cf. 2010 Annual Report of BaFin, pp. 185 f. (new legal situation; transparency requirements) and the respective BaFin Annual Report, chapter “Supervision of Securities Trading and Investment Business.”
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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