Comments on: Is there an alternative to exchange-traded CDS? http://blogs.reuters.com/felix-salmon/2010/03/19/is-there-an-alternative-to-exchange-traded-cds/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: MD4VB http://blogs.reuters.com/felix-salmon/2010/03/19/is-there-an-alternative-to-exchange-traded-cds/comment-page-1/#comment-12809 Sat, 20 Mar 2010 10:05:17 +0000 http://blogs.reuters.com/felix-salmon/?p=3002#comment-12809 You don’t deal with industrial organization issues through infrastructural design. Leave that up to anti-trust, or to taxing systemically important market participants. The alignment of interests between an infrastructure’s owners and their users is actually helpful when things get rough. No one else has the depth of pockets or information to be able to manage these things properly – including most small to mid-size brokers.

There’s also an assumption here that an exchange is a viable solution. Perhaps for the most liquid stuff it could be. But there’s more to liquidity than just squeezing spreads – there’s also the resilience of liquidity. When times get tough participants have less incentives to show their hand through an exchange-traded market, and there’s a real risk of discontinuity and market failure.

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By: Katie212 http://blogs.reuters.com/felix-salmon/2010/03/19/is-there-an-alternative-to-exchange-traded-cds/comment-page-1/#comment-12801 Fri, 19 Mar 2010 21:00:17 +0000 http://blogs.reuters.com/felix-salmon/?p=3002#comment-12801 The issue is whether the mechanism operates in the interest of all market participants and supports innovation. Tradeweb, ICE Trust etc are owned by the large banks. The owners of Tradeweb withdrew their liquidity from mortgage bond competitor ICAP overnight. Since they both own and use the trading systems, it is extremely difficult for a competitor to establish itself.

Small and mid-size brokers believe that bank-owned ICE Trust is deliberately making it difficult for them to join as clearing members thereby ensuring they have to pay the arge banks to clear for them and putting them at a price disadvantage, to say nothing of giving the clearing firm access to information about their deals. See the recent Bloomberg article on this.

The OTC derivatives market is already dominated by a handful of large bank dealers. Surely fair and efficient markets are not served if they can consolidate their oligopoly by controlling the infrastructure as well.

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By: Uncle_Billy http://blogs.reuters.com/felix-salmon/2010/03/19/is-there-an-alternative-to-exchange-traded-cds/comment-page-1/#comment-12800 Fri, 19 Mar 2010 20:21:45 +0000 http://blogs.reuters.com/felix-salmon/?p=3002#comment-12800 That’s a lot of words. The short answer is: Yes, a planned economy. That answer can be applied to all the other garbage that’s polluting the internet and conversation from Reykjavik to Billyberg. All the bicycles, bad art, and cheap wine we could ever want.

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