Credit-default swaps
: financial instruments used to hedge against losses or speculate on a company's creditworthiness, pay the buyer face value in exchange for the underlying bonds or the cash equivalent set by the auction.
Market Statistics
BIS http://www.bis.org/statistics/derdetailed.htm
- Notional amount (2007): $ 44 trn.
- Gross market value (2007): $ 2 trn.
Related bodies
Creditfixings.com : a Web site run by auction administrators Markit Group Ltd. and Creditex Group Inc. More than 500 banks and investors signed up to settle credit-default swaps based on the auction price
The Depository Trust & Clearing Corp. (DTCP): runs a central registry for credit-default swaps
International Swaps and Derivatives Association (ISDA) in New York.
References
IAIS Global Reinsurance Market Report 2006
BIS, OTC derivatives market activity survey – leading global dealers to the central banks of the G10 countries, only CDS
Fitch Ratings, Global Credit Derivatives Survey, 21 Sep. 2006 – wider range but smaller panel of dealers
BBA, Credit Derivatives Report 2006, September 2006
ISDA, Mid-Year 2006 Market Survey, 19 Sep. 2006
G30, Reinsurance and International Financial Markets, 2006
Swiss Re, Munich Re
Committee on the Global Financial System, Credit Risk Transfer
Interesting facts
The DTCC said earlier this month there were about $72 billion in Lehman contracts outstanding at the time the company filed for bankruptcy.
ISDA has cited industry estimates of as much as $400 billion in Lehman contracts.
Sellers of credit-default swaps protecting against a default by bankrupt Washington Mutual Inc. will pay 43 cents on the dollar after the biggest bank failure in U.S. history.
Credit-swap investors earlier this week exchanged between $6 billion and $8 billion to settle Lehman contracts after an Oct. 10 auction that required protection sellers to pay 91.375 cents on the dollar, according to ISDA estimates.
Source: Bloomberg (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a21h5cpBspUM#)