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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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Jan 17

Written by: Donald van Deventer
1/17/2012 10:54 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 sixth in the CDS trading volume series, we look at weekly credit default swap trading volume for non-U.S. banking firms among those 1,090 reference names.  We find that there is minimal non-dealer trading volume in the 97 international banking firms for which DTCC reported non-zero trading volume.

The first five 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, trading volume and its implications among U.S. banking companies, and trading volume in sovereign, municipal and sub-sovereign entities: 

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

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

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

van Deventer, Donald R. “Municipal Credit Default Swap Trading Volume,” Kamakura blog, www.kamakuraco.com, January 11, 2012.

van Deventer, Donald R. “Sovereign Credit Default Swap Trading Volume,” Kamakura blog, www.kamakuraco.com, January 12, 2012.

In this blog, we analyze credit default swap trading volume for the non-U.S. banking firm 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 non-U.S. banking 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 International Banking Reference Names

Of the 1,090 reference names for which DTCC reported credit default swap trades in the 77 week period, 97 were non-U.S. banking firms:

ABN AMRO BANK N.V.
ALLIANCE & LEICESTER PUBLIC LIMITED COMPANY
ALLIED IRISH BANKS PUBLIC LIMITED COMPANY
ANGLO IRISH BANK CORPORATION LIMITED
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
BANCA ITALEASE S.P.A.
BANCA MONTE DEI PASCHI DI SIENA S.P.A.
BANCA NAZIONALE DEL LAVORO S.P.A.
BANCA POPOLARE DI MILANO SOC. COOP. A R.L.
BANCO BILBAO VIZCAYA ARGENTARIA, SOCIEDAD ANONIMA
BANCO COMERCIAL PORTUGUES, S.A.
BANCO DE SABADELL, S.A.
BANCO ESPIRITO SANTO, S.A.
BANCO POPOLARE SOCIETA COOPERATIVA
BANCO POPULAR ESPANOL, S.A.
BANCO SANTANDER, S.A.
BANK OF CHINA LIMITED
BANK OF SCOTLAND PLC
BARCLAYS BANK PLC
BAWAG P.S.K. BANK FUER ARBEIT UND WIRTSCHAFT UND OESTERREICHISCHE POSTSPARKASSE AKTIENGESELLSCHAFT
BAYERISCHE LANDESBANK
BNP PARIBAS
CAIXA D'ESTALVIS I PENSIONS DE BARCELONA
CAJA DE AHORROS DE VALENCIA, CASTELLON Y ALICANTE, BANCAJA
CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID
CATHAY FINANCIAL HOLDING CO., LTD.
CHINA DEVELOPMENT BANK CORPORATION
COMMERZBANK AKTIENGESELLSCHAFT
COMMONWEALTH BANK OF AUSTRALIA
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
CREDIT AGRICOLE SA
CREDIT SUISSE (USA), INC.
CREDIT SUISSE GROUP LTD
DANSKE BANK A/S
DBS BANK LTD.
DEUTSCHE BANK AKTIENGESELLSCHAFT
DEXIA CREDIT LOCAL
DNB NOR BANK ASA
ERSTE GROUP BANK AG
FORTIS BANK
FORTIS N.V.
HANA BANK
HSBC BANK PLC
HSBC FINANCE CORPORATION
IKB DEUTSCHE INDUSTRIEBANK AKTIENGESELLSCHAFT
INDUSTRIAL BANK OF KOREA
ING BANK N.V.
ING VERZEKERINGEN N.V.
INTESA SANPAOLO SPA
JOINT STOCK COMMERCIAL BANK - BANK OF MOSCOW (OPEN JOINT STOCK COMPANY)
JOINT STOCK COMMERCIAL BANK-BANK OF MOSCOW (OJSC)
JOINT STOCK COMPANY 'HALYK BANK OF KAZAKHSTAN'
JOINT STOCK COMPANY 'HALYK SAVINGS BANK OF KAZAKHSTAN'
JSC "GAZPROM"
JSC "KAZKOMMERTSBANK"
JSC 'GAZPROM'
JSC 'KAZKOMMERTSBANK'
JSC VTB BANK
KBC BANK
KOOKMIN BANK
LLOYDS TSB BANK PLC
MACQUARIE BANK LIMITED
MIZUHO CORPORATE BANK, LTD.
NATIONAL AUSTRALIA BANK LIMITED
NATIONWIDE BUILDING SOCIETY
NORDEA BANK AB
NORTHERN ROCK (ASSET MANAGEMENT) PLC
OVERSEA-CHINESE BANKING CORPORATION LIMITED
RAIFFEISEN BANK INTERNATIONAL AG
RAIFFEISEN ZENTRALBANK OESTERREICH AKTIENGESELLSCHAFT
RESONA BANK, LIMITED
RUSSIAN AGRICULTURAL BANK
SBERBANK
SHINHAN BANK
SHINSEI BANK, LIMITED
SKANDINAVISKA ENSKILDA BANKEN AB
SOCIETE GENERALE
STANDARD CHARTERED BANK
STATE BANK OF INDIA
SUMITOMO MITSUI BANKING CORPORATION
SVENSKA HANDELSBANKEN AB
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
THE EXPORT-IMPORT BANK OF CHINA
THE EXPORT-IMPORT BANK OF KOREA
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
THE KOREA DEVELOPMENT BANK
THE NORINCHUKIN BANK
THE ROYAL BANK OF SCOTLAND N.V.
THE ROYAL BANK OF SCOTLAND PUBLIC LIMITED COMPANY
UBS AG
UNICREDIT BANK AG
UNICREDIT, SOCIETA PER AZIONI
UNIONE DI BANCHE ITALIANE SOCIETA COOPERATIVA PER AZIONI
UNITED OVERSEAS BANK LIMITED
WESTLB AG
WESTPAC BANKING CORPORATION
WOORI BANK

No credit default swap trades were reported in the 77 weeks ending December 30, 2011 for any other non-U.S. banking firms.

Analysis of Daily Average Non-Dealer Trades Per Day

We first analyze the 77 week averages for the 97 non-U.S. banking firms for which CDS trading volume was greater than zero during the 77 weeks ending December 30, 2011. The daily average non-dealer trading volume, calculated as described above, was distributed as follows:



The conclusions that can be drawn from this table are summarized here:

  • 80.4% of the 97 international banks, a total of 78 firms, had trading volume that averaged less than one non-dealer CDS contract per day over the 77 weeks ending December 30, 2011.
  • 91.8% of the 97 international banks, a total of 86 firms, had trading volume that averaged less than two non-dealer CDS contracts per day over the 77 weeks ending December 30, 2011.
  • None of the 97 international banks had trading volume that averaged more than 3 trades per day in the 77 weeks ended December 30, 2011.
  • The average number of non-dealer trades per day over the period studied was 0.57 trades.
  • The median number of non-dealer trades per day over the period studied was 0.27 trades.

We conclude that, like the 1,090 reference names overall, trading volume for the 97 international banks with CDS traded during the 77 weeks ending December 30, 2011 is minimal when analyzed on a non-dealer daily average basis.

Analyzing Trading Volume in Aggregate

We now analyze all 77 weeks of data, not just the average over that period, for all 97 international banks for which DTCC reported non-zero trade volume.  There were 7,469 (= 97 x 77) observations on CDS trading volume for these 97 banks, and there were no trades for 1,948 observations, 26.1% of the total.  The distribution of non-dealer trades per day over these 7,469 observations is summarized in the following chart:



One can draw the following conclusions over 7,469 weekly observations:

  • 82.37% of the observations showed 1 non-dealer trade per day or less.
  • 98.90% of the observations showed 5 non-dealer trades per day or less.
  • 99.95% of the observations showed 10 non-dealer trades per day or less.
  • Only 0.05% of the observations were for more than 10 non-dealer trades per day, just 4 of the 7,469 observations.
  • The highest volume week featured 435 gross trades per week, 87 gross trades per day, and 15.9 average non-dealer trades per day.

As we stated above, this confirms that there is minimal trading volume in the 97 international banks on which CDS trades were reported by DTCC in the 77 weeks ended December 30, 2011. 

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 international bank reference name to those who e-mail info@kamakuraco.com and certify that they have read and agreed to the following DTCC terms of use agreement:

http://www.dtcc.com/products/consent.php?id=tiwd/products/derivserv/data/index.php

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

Donald R. van Deventer
Kamakura Corporation
Honolulu, January 18, 2012

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