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Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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Kamakura Blog

Jan 10

Written by: Donald van Deventer
1/10/2012 11:40 PM 

On January 9, we reviewed trading volume in credit default swaps for 1,090 reference names reported by the Depository Trust & Clearing Corporation and found that only one reference name in the world had averaged more than 10 non-dealer trades per day in the 77 weeks ended on December 30, 2011.  In today’s blog, the fourth in the CDS trading volume series, we look at weekly credit default swap trading volume for sub-sovereigns and municipals among those 1,090 reference names.  We find, unfortunately, that (in the words of Gertrude Stein) “there is no there there.”

The first three blogs in our series on trading volume in the credit default swap market focused on the share of dealer-dealer trading, trading volume in all 1,090 reference names reported by DTCC, and trading volume and its implications among U.S. banking companies: 

van Deventer, Donald R. “Collusion and CDS Dealer Volume,” Kamakura blog,, January 4, 2012.

van Deventer, Donald R. “CDS Trading Volume for 1,090 Reference Names,” Kamakura blog,, January 9, 2012.

van Deventer, Donald R. “Credit Default Swaps and Deposit Insurance,” Kamakura blog,, January 10, 2012.

In this blog, we analyze credit default swap trading volume for the municipal and sub-sovereign reference names among the 1,090 reference names for which CDS trades were reported by DTCC during the 77 week period ending December 30, 2011. The weekly trade information is from the Section IV reports from DTCC. The data is described this way in the DTCC document “Explanation of Trade Information Warehouse Data” (May, 2011):

“Section IV (Weekly Transaction Activity) provides weekly activity where market participants were engaging in market risk transfer activity. The transaction types include new trades between two parties, a termination of an existing transaction, or the assignment of an existing transaction to a third party. Section IV excludes transactions which did not result in a change in the market risk position of the market participants, and are not market activity. For example, central counterparty clearing, and portfolio compression both terminate existing transactions and re-book new transactions or amend existing transactions. These transactions still maintain the same risk profile and consequently are not included as ‘market risk transfer activity.’”

As discussed in the January 9 blog, our emphasis is not on gross trading volume.  As our January 4, 2012 blog showed, dealer-dealer volume is 81.68% in the single name credit default swap market and it would be nearly costless for dealers to inflate gross trading volume by trading among themselves. Instead, we focus on “end user” trading where at least one of the parties to a trade is not a dealer.  Accordingly, we make the following adjustments to the weekly number of trades reported by DTCC for each municipal and sub-sovereign reference name:

  1. We divide each weekly number of trades by 5 to convert weekly trading volume to an average daily volume for that week.

  2. From that gross daily average number of trades, we classify 81.68% of trades as “dealer-dealer” trades, using the average “dealer-dealer” share of trades in the DTCC trade warehouse during the 77 week period studied.

  3. The remaining 18.32% is classified as daily average “non-dealer” volume, the focus of the reporting below.

Daily Non-Dealer Trading Volume for Municipal and Sub-Sovereign Reference Names

Of the 1,090 reference names for which DTCC reported credit default swap trades in the 77 week period, only 9 were sub-sovereigns of any type:


Eight of the 9 reference names were in the United States and 7 of the 9 reference names were U.S. states.  The only cities on which credit default swaps had any trades in the 77 weeks ended December 30, 2011 were the City of New York and Hong Kong.  We can summarize the trading volume in these 9 reference names as follows:

  • There were 9 x 77 = 693 weekly observations, but there were only 309 weeks in which trades were reported. That means in 55.4% of the 77 weeks, on average, there would be no trades on these 9 reference names.
  • The average number of non-dealer trades per day on all 9 reference names over the 77 week period was 0.11 trades per day.
  • The median number of non-dealer trades per day over the 77 week period among the 9 reference names was 0.06 trades per day.
  • The highest average number of non-dealer trades per day for the full 77 week period among the 9 reference names was 0.36 trades per day.
  • The lowest average number of non-dealer trades per day for the full 77 week period among the 9 reference names was 0.00 (rounding to two decimal places).
  • The highest number of gross trades in one week was 84, which is the equivalent of 16.8 gross trades per day and 3.1 non-dealer trades per day.

The obvious conclusion is that there is minimal trading volume in credit default swaps on sub-sovereign and municipal reference names and that any pricing indications should be regarded with a high degree of skepticism.

Detailed Information on CDS Trading Volume by Individual Reference Name

The DTCC website requires those who download the data to accept the following language in the “Terms of Use Agreement”:

“You agree to treat any Report containing data on a specific entity, rather than aggregate position or transaction activity or other aggregate data, as confidential, or, if you are a regulator or governmental entity, in accordance with any statutory confidentiality requirements applicable to you.”

Put differently, the data is available for free to everyone who agrees to the Terms of Use Agreement, but Mr. A cannot give the freely available data on a reference name basis to Mr. B unless Mr. B has also agreed to the Terms of Use Agreement.

Therefore, Kamakura is pleased to provide the listing of trading volume by reference name to those who e-mail and certify that they have read and agreed to the following DTCC terms of use agreement:

We urge the DTCC to remove the restriction above from the terms of use agreement immediately.

Donald R. van Deventer
Kamakura Corporation
Honolulu, January 11, 2012