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Staff Analysis of Market Data Related to Credit Default Swap Transactions

The Division of Risk, Strategy, and Financial Innovation has completed an analysis of single-name credit default swap transaction and position activity. The first analysis is based on a sample of all new, risk transfer, dollar-adjusted, gold record transactions in both corporate and sovereign single-name credit default swaps (CDS) submitted to the Depository Trust and Clearing Corporation’s Trade Information Warehouse (DTCCTIW) between January 1, 2011 and December 31, 2011 (the sample period). The second analysis is based on monthly position data in single-name CDS over the same sample period and provided by DTCC-TIW. The analysis provides information that characterizes the level of trading activity and positions in the credit default swap market. It is intended to assist the Commission in the development of final rules that further define the terms “security-based swap dealer” and “major security-based swap participant” in connection with the implementation of the Dodd-Frank Act. In part, this information should help evaluate the impact of alternative approaches (1) to implementing the de minimis exception to the “security-based swap dealer” definition by quantifying, under certain assumptions, the number of persons who may be required to register as “security-based swap dealers” or “major security-based swap participants,” and (2) to evaluating the security-based swap activities and positions of such persons. The memo is organized as follows. Section I first discusses potential criteria which, when analyzed in combination with the single-name CDS dataset available from DTCCTIW, may be indicative of dealer activity. Next, the section outlines the methodological approach. An analysis of each criterion based on 12-month aggregate gross notional dollar value of single-name CDS transactions and illustrated by charts and tables follows, as well as an analysis of the effect of combining multiple criteria. Section I concludes with an analysis of transaction activity between counterparties and special entities. Section II provides an analysis of aggregate gross notional positions that may be relevant to predicting the number of entities that need to determine whether they qualify as major security-based swap participants. Finally, an appendix repeats the criteria analysis from Sections I and 2 for index CDS.