What effect will the new CDS exchange have on interdealer brokers?
O
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(Senior Baboon, 228
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on 3/9/09 at 4:31am
Credit derivatives have been a pretty lucrative product for interbroker dealers since all of the transactions are conducted OTC. How badly are all the interdealer brokers (mainly ICAP, GFI Group, Tradition, Cantor Fitzgerald, etc.) going to be hit once the CDS exchange is finally launched?
Business in single name CDS issues will probably see significant decreases but I imagine that the more complex, exotic OTC derivative products will still require interdealer brokers?





Curious about this as well
Curious about this as well
anything that becomes more
anything that becomes more standardized has a reduced margin - as dealers see that, so will IDB. Not that an IDB really gives a shit (until their customers go out of business), but it will also reduce counterparty risk.
Margins will contract but I
Margins will contract but I expect volume to pick up tremendously once a more transparent market exists. With transparency comes liquidity. Also Remember that the brokers offer bits of information that an actual CDS exchange cant and in addition they could allow for a very large block to be crossed with a counterparty. Credit brokers could become more like execution brokers in more liquid products such as equities, FX, and Futures.
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
More Transparent Yes But More Liquid?
I imagine though that the way CDS is traded would be very different just because of the additional money that you would have to put up front for the same exposure.
For example on an IG CDS right now you might be paying 250 bps on buy protection. Once these CDS trade on the CDS exchange though you're going to have to put down additional upfront margin. So would you be looking at prices now on CDS looking more like 1 + .25 bps, 1mm upfront plus 250k per year? In that case I would imagine that market participants may just want to trade the underlying cash bond instead.
John Nixon on Bloomberg
Credit derivatives have been a pretty lucrative product for interbroker dealers since all of the transactions are conducted OTC. How badly are all the interdealer brokers (mainly ICAP, GFI Group, Tradition, Cantor Fitzgerald, etc.) going to be hit once the CDS exchange is finally launched?
Business in single name CDS issues will probably see significant decreases but I imagine that the more complex, exotic OTC derivative products will still require interdealer brokers?
John Nixon, CEO of ICAP North America talked about the probable outcomes for the firm upon the institution of a clearinghouse/exchange. I suggest you all check it out.
http://www.youtube.com/watch?v=QZEqn3Vkgs4
good find max
good find max