CDSes Go Electronic
Waters - August 2007

The market for credit default swaps (CDSes) has mushroomed in recent years even as manual processes have dominated the scene. The recent launch of the Q-WIXX® platform by interdealer broker Creditex is changing that, offering greater certainty of execution, fewer errors and a better chance of superior trading outcomes that automation brings, much to the relief of buy- and sell-side traders. With other vendors expanding and developing their products, credit trading is on the cusp of automation.

Explosive Growth

The CDS, essentially a contract in which two firms exchange the risk that a borrower will default on its bonds or loans, offers exceptional yield for credit traders, whether they are buying or selling the derivative. Since the market came to be commonly traded around 2001, it has taken off rapidly. Investors have been educated about the benefits of the CDS and liquidity has increased, forcing better prices to be offered by dealing banks. After its most recent market survey earlier this year, the International Swaps and Derivatives Association (ISDA) estimated that the notional outstanding volume of CDSes had grown by 33 percent in the second half of 2006, rising from $26 trillion to $34.5 trillion. The overall growth per year has been just over 100 percent since 2005.

Click here to read full article

Back