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CDS Liquidity Set To Tumble As Deutsche Bank Exits IG, HY Trading

Tyler Durden's picture




 

Back in 2009, Deutsche Bank salesman J.P. Rorech was the CDS salesman who, alongside Millennium PM Renato Negrin, were the first two traders accused by the SEC of insider trading using Credit Default Swaps, a product which many then said the SEC has no jurisdiction over as it is a "security-based swap" transaction (an umbrella loophole which was subsequently revised). The insider trading charge was subsequently dropped after the SEC was unable to provide sufficient proof the two had colluded "off the record" in purchasing VNU CDS on material non-public info, but the stigma may have stuck.

And while it is not clear if that particular incident is what the bank with the world's greatest amount of outstanding notional derivatives was concerned about, or whether the ongoing collapse in bond market liquidity was the factor but moments ago, Bloomberg released a stunning update that Europe's largest bank is exiting the single-name, both IG and HY, CDS product line, which for years was one of its biggest revenue generators and a product in which DB was for a long time one of the best and deepest CDS trade axes.

As Bloomberg reports, Deutsche Bank AG will stop trading investment-grade and high-yield credit default swaps on single credits and will instead focus on trading corporate bonds, according to a spokeswoman.

“Deutsche Bank is redeploying resources and capital into credit cash trading,” Michele Allison, a spokeswoman for the Frankfurt-based bank, said today.

 

The company will continue trading credit indexes and single-name CDS tied to distressed or emerging market debt, Allison said.

Of course, the very reason why banks moved from cash to CDS trading in the mid-2000s is because the cash liquidity was never high enough to allow massive profits for most entities involved. That, and that the collateral posted when trading credit via CDS was negligible as compared to actually having to own the underlying bond.

And with that, the CDS market just lost one of its key pillars of liquidity. Should other banks follow suit and stop making markets in CDS, watch as trading in CDS (so profitable due to its OTC nature, where dealers make big profits on the bid/ask spread), trickles to a halt, and as one after another TBTF bank warn their FICC revenue in the coming quarters is about to timble.

Finally, one can't help but wonder: is a massive CDS-market rigging settlement about to be unveiled?

 

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Mon, 11/17/2014 - 11:57 | 5457281 LawsofPhysics
LawsofPhysics's picture

Blah blah blah...  ..."swap" my useless paper for your useless paper...

when the exchange of real goods and services stops, then the world goes to war in earnest, not before.

same as it ever was...

 

Mon, 11/17/2014 - 12:01 | 5457295 savedeposit
savedeposit's picture

Ha Ha Ha ..... "swap"my useless paper for your usefull fysical gold and silver.

when the exchange of real goods and services stops, then the world goes to war in earnest, not before.

same as it ever was...

Mon, 11/17/2014 - 12:09 | 5457339 LawsofPhysics
LawsofPhysics's picture

When fraud is the status quo, possession is the law...

Mon, 11/17/2014 - 12:13 | 5457346 McCormick No. 9
McCormick No. 9's picture

I don;t know about you guys, but that chart really cleared things up for me...

No, I'm not serious, I'm being sarcastic. WTF????

Mon, 11/17/2014 - 12:26 | 5457403 McCormick No. 9
McCormick No. 9's picture

OK, I did some research (smoked a bowl of LEGAL Colorado recreational pot), and NOW I will interpret this chart for the rest of you who will not admit to ignorance:

The two figures at the top with dots beneath them, these represent the red pill/blue pill paradigm. If you swap your pills over the counter for advil or ibuprofen, (which represent blatant money laundering and open banker fraud) then you lose out on the great deals you could have made UNDER THE COUNTER, ie, in the illegal drugs trade, which is represented by the icon of people holding dollar bills. This is the hidden manipulation of all sorts of markets, gold, etc etc, done in underhanded, secret nefarious ways.

If your illegal transaction was accomplished by some form of modern communications (cell phone, email, telephine, radio, etc), that communique was intercepted by the NSA, represented by the boxes on the left side of the chart. The "public" at the botto of the chart is misleading. It only means your communications are not private. Anyone who wants to can listen in on them.This means you can be blackmailed, and can look forward to getting even richer by doing the bidding of those who control you and own your soul.

If, on the other hand, you resorted to whispers in the ear, carrier pigeons, smoke signals, invisible ink, ten-year old couriers, or other low-tech means of communication, your messages are safe, as plainly revealed by the SAFE icon.

In either case, the SEC is plainly living inside a bubble of its own reality, and couldn't care less how you launder your money.

Mon, 11/17/2014 - 12:30 | 5457422 savedeposit
savedeposit's picture

I think its an instuction on how to use toilet paper to swap your ass after taking a dump, or taking a leak (so they have more liquidity)

 

Mon, 11/17/2014 - 12:40 | 5457455 BurningFuld
BurningFuld's picture

You all know CDS trading is simply "robbing the bank in broad daylight". They make these things up and then trade them back and forth and charge you and me fees out of our deposits for doing it.

WAKE THE FUCK UP PEOPLE!

The Banks Loan risk is already spread over THEIR OWN LOAN PORTFOLIO.

Mon, 11/17/2014 - 12:52 | 5457509 linniepar
linniepar's picture

Guilty!

Mon, 11/17/2014 - 12:41 | 5457463 drdolittle
drdolittle's picture

I'm jealous of your recreational drug. I'm stuck with alcohol or nothing. Alcohol is just less fun and if you overdo it you feel crappy the next day. Looks like DC legalized it but it'll take another two years til it's actually available. I live too far from CO, AK, WA, OR etc.

Mon, 11/17/2014 - 13:32 | 5457666 lasvegaspersona
lasvegaspersona's picture

you could not tell that those little people icons were 'people'? I could...now the rest.....?

Oh...I think I know what 'swap' means...

Mon, 11/17/2014 - 12:57 | 5457506 Kirk2NCC1701
Kirk2NCC1701's picture

Possession is almost ALWAYS the Law.  For example...

 

[1] In a Law-Abiding Society (Rule of Law) ... "Possession is 90% of the Law", it is said.

[2] In a Lawless or Autocratic Society (Law of Rule)... "Possession is 99% of the Law", don't you know.

Hedge accordingly: i.e. keep ownership documents, and the means to retain physical ownership (via arms and hiding places).  And beware of Murphy's Laws; hence, mitigate and manage Risk.  Kirk out.

Mon, 11/17/2014 - 12:08 | 5457331 Aeternus
Mon, 11/17/2014 - 11:58 | 5457286 williambanzai7
williambanzai7's picture

Prepare for lift off...

Mon, 11/17/2014 - 12:02 | 5457307 kaiserhoff
kaiserhoff's picture

A stroke of sanity, from Deutsche Bank, of all volk?

Mein godt, will wonders never cease?

(More like captial restrictions, finally, at long last, being enforced.)

Mon, 11/17/2014 - 12:08 | 5457330 Quinvarius
Quinvarius's picture

They live in the same country as Bafin.  Most likely they have a red hot poker up their butts 24/7 and strict instructions to limit exposure to American ponzi banking practices.

Mon, 11/17/2014 - 12:14 | 5457345 williambanzai7
williambanzai7's picture

Let us see who is holding the shale gas HY bag shall we? And let us see what happens to HY liquidity without a big sucker standing by...

Mon, 11/17/2014 - 12:25 | 5457404 kaiserhoff
kaiserhoff's picture

I'm gonna need more popcorn;)

Mon, 11/17/2014 - 12:39 | 5457461 williambanzai7
williambanzai7's picture

Better buy the machine...

Mon, 11/17/2014 - 14:22 | 5457851 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Yep, they figure the big money making days of the scam are over. Get out and let someone else hold the bag.

Mon, 11/17/2014 - 13:01 | 5457553 WTFRLY
WTFRLY's picture

Paging Dr. Bernanke, Dr. Yellen, your ICU patient is seizing. V FIB!!!

Mon, 11/17/2014 - 12:01 | 5457287 NoDebt
NoDebt's picture

OK, I'll take a shot at an explanation on this one:

"I'm fucking full"  - Mr. Creosote, Monte Python's "The Meaning of Life"

Mon, 11/17/2014 - 12:03 | 5457313 Headbanger
Headbanger's picture

Better get a lot moar than a bucket this time too!

Mon, 11/17/2014 - 12:02 | 5457298 1stepcloser
1stepcloser's picture

Can I get a wife swap...or is that illiquid as well

Mon, 11/17/2014 - 12:05 | 5457315 Headbanger
Headbanger's picture

Not if you swap her for a nice truck

Mon, 11/17/2014 - 12:07 | 5457328 kaiserhoff
kaiserhoff's picture

Wives yes,

 Wookies, not so much.

Mon, 11/17/2014 - 13:02 | 5457551 Kirk2NCC1701
Kirk2NCC1701's picture

I understand that if you have Sister-Wives, you can do all the swapping of liquidities that you can muster.  ;-),

Damn, if I get rich, I'll convert to this flavor of Mormonism.  Cause I just don't have enough grief with One wife.

Mon, 11/17/2014 - 13:33 | 5457672 lasvegaspersona
lasvegaspersona's picture

they can make their own bread....

more than I can say for most of the kids....

Mon, 11/17/2014 - 12:01 | 5457302 Bell's 2 hearted
Bell's 2 hearted's picture

industrial production ... again

 

one of my canaries has been subprime auto lending (beginning to sour)

 

october new vehicle sales saw GM and Chrysler (Ford doesn't report #) month end dealer inventory grew by ~ 10 days ... DESPITE (from IP report for oct)

 

"These gains were partially offset by declines of more than 1 percent in the indexes for nonmetallic mineral products and for motor vehicles and parts. The decline in motor vehicles and parts resulted from a decrease in vehicle assemblies, which fell 400,000 units to an annual rate of 11.1 million."

 

and sept's IP report noted a 3/4 percent drop in this category.

 

in contrast

 

sept 2013 ... +1.9%

oct 2013 ... -1.3%

Mon, 11/17/2014 - 12:03 | 5457304 buzzsaw99
buzzsaw99's picture

DB, the other LEH

Mon, 11/17/2014 - 12:06 | 5457322 Dr. Engali
Dr. Engali's picture

Only bigger.

Mon, 11/17/2014 - 12:11 | 5457341 buzzsaw99
buzzsaw99's picture

Their new motto:

DB, negative EPS, still pays a dividend.

lulz lulz lulz

Mon, 11/17/2014 - 12:12 | 5457343 Bell's 2 hearted
Bell's 2 hearted's picture

yep

 

it is clear (imo) DB knows SOMETHING we don't

 

and not good ... if they are exiting the field of play for something till now been profitable

Mon, 11/17/2014 - 12:42 | 5457473 The New paraNormal
The New paraNormal's picture

This is a really big deal.

Shale related damage estimated to be 2-3% of HY.

Jim Willie call your office.

Germany backtracking through the maze.

Quietly like Danny.

 

Mon, 11/17/2014 - 12:03 | 5457308 Government need...
Government needs you to pay taxes's picture

Makes you wonder what new scam DB has cooked up to defraud Main Street so their 'made' men can afford the little extras in life (the Gee-Vee, the manse for the mistress, and the double vacations to St Barts and Vail).  Hang 'em high!

Mon, 11/17/2014 - 12:22 | 5457378 dracos_ghost
dracos_ghost's picture

Sum Ting Wong.

Mon, 11/17/2014 - 12:11 | 5457318 Dr. Engali
Dr. Engali's picture

The fact that Douche bank's stock has been on a death march may have something to do with this decision.

 

 

http://goo.gl/ZYhA5o

Mon, 11/17/2014 - 12:51 | 5457505 Bay of Pigs
Bay of Pigs's picture

Dead Man Walking?

Mon, 11/17/2014 - 12:05 | 5457320 gwar5
gwar5's picture

Let me be the first to say it'd be a dirty rotten shame if CDS liquidity problems caused it to start raining bankers from the tops of tall buildings again.

Mon, 11/17/2014 - 12:08 | 5457332 kaiserhoff
kaiserhoff's picture

Are they sold out of nail guns?

Damn early Christmas shoppers.

Mon, 11/17/2014 - 12:07 | 5457325 NoDebt
NoDebt's picture

DB doesn't think selling "portfolio insurance" is such a good idea any more?  Wow.

Mon, 11/17/2014 - 12:15 | 5457342 Dr. Engali
Dr. Engali's picture

Credit event.... lol.... Don't they have those every president's day at furniture stores and used car dealerships?

Mon, 11/17/2014 - 12:07 | 5457329 Lady Jessica
Lady Jessica's picture

"*This graphic is based on the provisions of the Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the SEC's implementation efforts to date"

Mon, 11/17/2014 - 12:53 | 5457514 williambanzai7
williambanzai7's picture

That is the chart SEC Chairtwat Mary Jo White uses to try to fathom what is going on.

Mon, 11/17/2014 - 12:11 | 5457340 cowdiddly
cowdiddly's picture

The E- trade baby is gonna be pissed.

Mon, 11/17/2014 - 12:22 | 5457382 Grinder74
Grinder74's picture

+1 for the avatar

Mon, 11/17/2014 - 21:19 | 5459570 Clycntct
Clycntct's picture

Comon man can't you see +2

Mon, 11/17/2014 - 12:18 | 5457360 taketheredpill
taketheredpill's picture

 

 

 

MARKIT?

Mon, 11/17/2014 - 12:21 | 5457377 SmittyinLA
SmittyinLA's picture

Germany is betting against Germany and the EU with US banks and Treasury as the counter-parties, genius 

Does the Kenyan know?

Yes, he's in on it too with a %.

Mon, 11/17/2014 - 12:22 | 5457390 taketheredpill
taketheredpill's picture

 

 

Given a choice between being under-weight versus being over-weight plus holding a piece of paper that says im actually under-weight...

 

People think they can play cute and offset exposure on a moments notice and thus avoid pain...good luck.

Mon, 11/17/2014 - 12:48 | 5457488 Broccoli
Broccoli's picture

It worked last time. AIG was the counterparty for a lot of this type of insurance was it not? They got backed up by the Fed and the Treasury so banks and hedge funds could get bailed out under the table.

 

People think they can play cute because history shows they can (until the sovereign itself defaults.)

 

It is only you and I that have to eat our broccoli.

Mon, 11/17/2014 - 12:41 | 5457464 SharkBit
SharkBit's picture

Finally, one can't help but wonder: is a massive CDS-market rigging settlement about to be unveiled?  Does not smell right to me.  Just as other banks have dumped their dodgy business lines before the SHTF.  Pretty much just setting up shop in new playground to manipulate. 

Mon, 11/17/2014 - 12:48 | 5457493 ekm1
ekm1's picture

Bank lobby surrendering to Pentagon.

 

I no longer foresee any suicides or assassinations at this point.

Surrender seems to be under way.

Mon, 11/17/2014 - 15:06 | 5458074 LawsofPhysics
LawsofPhysics's picture

What has been surrendered?  I still see trillions in unfunded liabilities.

Mon, 11/17/2014 - 13:16 | 5457613 Bangalore Equit...
Bangalore Equity Trader's picture

Listen.

Use to be big enough margins in CDS trading to justify the risk. Now, not so much. Even Tyler use to shed light on potential trades. Years ago. Markit.

This is good news for CDS trading.

Mon, 11/17/2014 - 18:11 | 5458894 ersatz007
ersatz007's picture

...to the flower people.

Mon, 11/17/2014 - 18:21 | 5458946 TheFourthStooge-ing
TheFourthStooge-ing's picture

+1 for Spinal Tarp reference.

http://www.youtube.com/watch?v=QjSIdurhSOg

Listen, to what the flower people say, ah ahhhhhhh,
listen, it's getting louder every day...

Mon, 11/17/2014 - 22:24 | 5459812 DipshitMiddleCl...
DipshitMiddleClassWhiteKid's picture

The amazing thing about CDS is that the insuranec industry lobbied to keep these things "OTC" and they are not regulated insurance products..even though they are 'insurance'

 

I wish I could trade CDS but theree is no such thing for retail pikers liek myself

 

~DipshitmiddleclassWhitekid

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