CDS As Insurance Contracts

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

CDS As Insurance Contracts

This Washington Post article about CDS being an insurance product one very useful point was brought out.  At the same time, there seems to be flaw in the argument and much of the argument is misdirected.

Typically, an option or futures contract expires, and it either is in or out of the money. Any tradable asset — stocks, bonds, futures, options, funds, etc. — settles on its own. There is a market price the asset closes at, a total volume of sales, and a final print for the day, month, quarter and year. No interpretation is required. Why on earth would anyone need a committee ruling for a trade?

I found this paragraph interesting.  While CDS does actually have a closing price and many of the other features of “any tradable asset” it does seem relatively unique to have a final determination of whether a “Credit Event” has occurred, thus triggering a final settlement provision. Barrier options have that feature, so it is not totally unique, but think it is an interesting argument in saying that CDS has more insurance elements than other tradable assets.  I will think about that point more, though I think exchange traded and fully cleared CDS would go a long way to alleviating the issue.

What I fail to understand is the point that making this an “insurance” product would somehow fix things and citing repeatedly that AIG was the only failure in CDS so far seems wrong.  The Insurance industry and regulators seem to cause far more problems than they fix, and if AIG – an insurance company – is the poster child for what went wrong with CDS, why is there any belief treating it as an insurance company would have any benefits? 

We have included the testimony of the National Association of Insurance Commissioners before a government committee with an even longer name.

AIG Financial Products and Holding Company Are Federally Regulated


By purchasing a savings and loan in 1999, AIG was able to select as its primary regulator the federal Office of Thrift Supervision (OTS), the federal agency that is charged with overseeing savings and loan banks and thrift associations.


AIG Financial Products is not a licensed insurance company and is not regulated by the states. Financial Products is an investment unit based chiefly in London. It was able to evade regulation under the British Financial Services Authority because the AIG holding company was registered with an “equivalent regulator,” the OTS.


Although OTS has acknowledged its role as the holding company supervisor, it is worth noting that credit default swaps were exempted from regulation under the Commodities Futures Modernization Act of 2000, which prevented both the C.F.T.C. and the states from regulating these instruments.

Talk about regulator cherry picking and arbitrage.

Anyways, there is a lot of confusion about what AIG FP did and did not do. 

AIG FP was a small entity that wrote huge amounts of contracts.  Some were done as credit derivatives, some were done to look as much like insurance policies as possible.  Many of the deals AIG FP wrote were pure pass through deals – basically the thing they referenced was the only deliverable.  In a typical CDS, any debt guaranteed by the company is a potential “Deliverable Obligation”.  In pass through trades, which virtually all of the mortgage deals were, it really is payment against specific loss of a specific asset (sounds more like insurance, and was something that the early corporate credit derivatives were careful to avoid since it did look more like insurance than a tradable asset).  So while people say AIG wrote CDS, the truth is AIG FP entered into a lot of contracts that had little or nothing to do with a typical corporate Reference Entity CDS trade.

AIG FP believed the risk of “super senior” protection was negligible.  The market thought so too, as it traded at less than 10 bps per annum in some cases.  Super senior was deemed to have very low risk of actual loss.  Collateral calls based on mark to market were a concern.  Although people expected zero realized losses, they were concerned that the mark to market could move against them.  This was a lesson learned by FSA, monolines and re-insurers early in the “super senior” game.  As they pushed back on the street and wanted to do deals with no collateral provisions, an opportunity was set up for AIG FP.

AIG FP wanted to write the protection and wanted to do it without having to post collateral.  The banks would not take AIG FP risk directly.  It was an undercapitalized entity in the AIG family of businesses (one of my favorites was Banque AIG – somehow Banque AIG sounds much sexier than Bank of AIG but it was also adept at using various parts of AIG to indirectly reduce funding costs).  The banks were happy to face AIG FP with better collateral terms if AIG FP had a guarantee from AIG (the holding company).  So the seeds of destruction were sown.  Banks would agree to buy protection from AIG FP, so long as it was fully guaranteed by AIG, AND they wouldn’t charge collateral unless AIG was downgraded below a certain threshold. 

AIG’s main asset was the insurance business it owned.  AIG was AAA primarily because of its insurance entities.  So you have a structure where AIG holdco is rated AAA because of the insurance businesses it owns, but it uses this credit rating to insure little know AIG FP which has nothing to do with the insurance company (in spite of selling things that looked a lot like insurance contracts – particularly the mortgage pass through trades).

Why weren’t insurance regulators concerned with what AIG was doing?  As the size of AIG FP’s exposures grew, why was no one in the regulatory community concerned?  Why was it so easy to take the insurance company AAA rating and whore itself to AIG FP without insurance regulators having a say?  Frankly, because the laws seem designed to let this sort of thing occur, and for whatever reason, too many people ignore guarantees when looking at potential exposure  (think about all the guarantee programs in Europe right now like EFSF and LTRO that the market is largely choosing to ignore). 

Had AIG not guaranteed AIG FP, the AIG FP business never would have started.  Once AIG was going to be downgraded, because of the AIG FP exposure, the collateral calls were going to kick in.  Had collateral calls been started on day one, this entity would have been shut down in early 2007 at a reasonable cost.  They would have had to come up with collateral in the early stages of the sub-prime crisis.  Losses would have been large, but the game would have been over.  Instead, the mark to market losses grew and grew, but so long as the margin call didn’t come, they were able to survive.  It was the threat of margin calls on the downgrade on what were now staggering mark to market losses, that caused the problem. 

In theory AIG holdco could have been wiped out and the AIG insurance companies would have been fine.  I am not sure many people believed that was possible given the high level of interconnectedness of the business and the artful use of regulatory cherry-picking by AIG, but in theory AIG FP should have been left to fail, and AIG with it.  Instead, the Fed pushed the rescue because banks had relied so much on “credit derivative” contracts with AIG FP, that they were concerned what would have happened if AIG FP and AIG had failed.

While AIG FP often made the contracts look like insurance products, the banks were very careful to make sure that the products were “credit derivatives” because they needed the regulatory capital relief provided by them.  Didn’t the Fed at some point get concerned about the counterparty exposure to AIG FP?  Isn’t counterparty risk something that the Fed is responsible for monitoring (or the ECB in the case of foreign banks)?  When the Fed let MS and GS become bank holding companies and get the ability to use Fed lending programs, didn’t they ask about the AIG FP exposure?  Goldman, which always claimed it was hedged, must have had a massive short position in AIG CDS to be hedged – again, no one at the Fed noticed this?  CDS may be unregulated, but when virtually every big financial company in the world has large notionals on with AIG, huge mark to market gains on those positions, no collateral from AIG, and big shorts in AIG CDS, couldn’t someone do their job?   This should have been noticeable in 2007!

It is not that CDS should or shouldn’t be an insurance contract, it is that the regulators of banks and insurance companies did horrible jobs and the rules help avoid those regulations that are in place, far too easily.

CDS should be fully cleared and exchange traded.  The concept of “net notional” and “gross notional” is unnecessary.  That can and should be changed.  Getting CDS indices, sovereign CDS, and bank CDS (where the self-fulfilling death spirals and virtuous circles are most obvious) onto exchanges and fully cleared should be an immediate priority of any regulator or politician who wants to create a fair, but more stable system.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
nope-1004's picture

All is fair in ponzinomics.  Sure someone noticed, but greed pulled the blinders over their eyes.


trav7777's picture

don't underestimate willful ignorance either

Ghordius's picture

The difference is narrative, I'd say Occam's Razor says ignorance and petty greed.

Regulation? Does not work, how do you set enough risk capital against?
That stuff is to be banned, that's all.

sgt_doom's picture

Now just one damn minute, here buster!

Harvard's legendary Martin Feldstein was a director at AIG's FP when this historic insurance swindle of theirs took place!

And Feldstein was also a director at HCA when they were involved in that historic Medicare/Medicaid fraud.

And Feldstein was also a director at Eli Lilly when they were forced to pay the historically largest criminal penalty for perfidy.

Oh yeah.....I guess you're right after all, big guy!

TheFourthStooge-ing's picture

"CDS may be unregulated, but when virtually every big financial company in the world has large notionals on with AIG, huge mark to market gains on those positions, no collateral from AIG, and big shorts in AIG CDS, couldn’t someone do their job?"

Their paychecks and career advancement prospects depend upon them not doing their job.


Snakeeyes's picture

Agreed. But i looked around and South America has virutally no CDS (except for sovereign debt).

But more importantly, on the debt side, the largest positions in Greek debt fall under British and Japanese law.

Will China get around to lending the US money IF and ONLY IF it falls under Chinese law?

DeadFred's picture

You have to believe that SOMEONE in the Fed saw it coming and said something but if the higher-ups said it was not an issue it would be ignored. If every potential problem was addressed we would have a very cautious market and cautious markets don't go up very fast or make people a lot of quick money.

Do you think that same SOMEONE or his brother is not pointing out the risks in today's markets? They will be ignored again because cautious markets don't go up very fast or make people a lot of quick money.

They're going all-in on a pair of queens and keeping their fingers crossed. Who knows, maybe it's the best hand at the table.

101 years and counting's picture

so, will markets finally tank or will they just continue to go on their merry fucking way and melt up???

valley chick's picture

please tell me that you forgot the /sarc button.

Vampyroteuthis infernalis's picture

Markets will cheer it up for a few days before reality sets in. Stock market implosion bitchez!!

valley chick's picture

Markets will cheer it up?  Guess I better put the popcorn back on the shelf.  :(

DeadFred's picture

If you don't see significant problems  in the next week or two I suggest you close out any short positions for a bit. reality has no relevance for this market.

Tao 4 the Show's picture

The authorities are ultimately all trying to protect the same currency. It's not the Euro, the buck, or the Yuan. All these moves can best be understood as desperate attempts to preserve confidence. If (when?) that breaks down, the rest of the cards tumble to the floor. IMO, concern about how much money is printed is tiny by comparison. It's all about optics, or as Sinclair says, MOPE.

disabledvet's picture

"complexity is everywhere and always the hobgoblin of sound finance." AIG was a true "mark to market"...precisely because of the way it was run. The folks who "truly understood this product" (risk incarnate) "happened upon a buyer"--and when they looked a little closer they found....

Piranhanoia's picture

Gambling insurance. Sanctioned and promoted by governments and their banks.

Do you remember the parable about the blind persons examining an elephant?  Each had a different part to touch, and their observations did not make a complete picture, nor agree with the other descriptions.

If you were to allow the blind to smell a CDS deal they might find it has gone beyond its shelf life and has an unpleasant smell.  If they asked to touch it,  the game would have been over before it started.  

It is hard to imagine anyone with the least bit of common sense would buy CDS, then agree to play pull the pin on the pineapple, blindfolded, knowing there are no rules and that the seller had left the building.   You think this can be regulated?  You think what is unreal has substance outside of the imagination?   Seems very illogical from Mr. Tchir.

GeneMarchbanks's picture

It's too late to make sense of it now while simultaneously too late to phase-out already 'existing' CDS contracts.

I love these little attempts at rationalizing greed. Only in America.

"We have insurance for the damage and for the interruption of business," --Don King

Central Bankster's picture

Another well written article by Peter Tchir  explaining the "how".

Centurion9.41's picture

No, it's not.  It's an overly complicated piece that provides cover for the cabal and is used to create the impression you need Peter for his wisdom and insight.

resurger's picture

I think the CDS should not be traded as either Options or Insurance!!

because if you have a barrier on the CDS the markets could be manipulated by the market makers to nullify the insurance policy, and if you hold the CDS till maturity shit loads of things can happen like for example the CB interventions.

The CDS should be regulated like Future Contracts in a third party account (who can you trust these days!) which has at least 50% of full nominal amount to eliminate short selling of CDS, the seller is not required to maintain any collateral (which is fucking Bullshit) to pay off the buyer which is fraud! Ask GShit

any haircut, the accounts Debt/Credit till maturity, if it's more than 50% margin calls !



Amish Hacker's picture

Maybe the problem is that we still haven't found "a regulator or politician who wants to create a fair, but more stable system." 

What we did find was lots of regulators and politicians who wanted to keep deriatives as profitable as possible for their friends, and that meant keeping them unregulated and away from any central clearing house. 

I always marveled at Greenspan's assertion that the geniuses peddling these "financial products" should be left alone, since they were the only people smart enough to understand what they were doing. 

sgt_doom's picture

You nailed it, Amish!!!

"..couldn’t someone do their job?"

Aaahhh.....I believe most of America lives on Sesame Street.

They neither know, nor care, who owns Sesame Street, who is behind Sesame Street, who created Sesame Street, etc., etc., etc.

Everyone who lives on Sesame Street lives in a state of perpetual Bliss, where all real knowledge has ceased to exist.

They don't know, nor care, who owns the banks, the oil companies, the biopharmaceutical companies, and the weapons makers.

And anyone who attempted to explain to them that they are all owned by the same select group would be called a conspiracy theorist --- for to the Sesame Streeters, any facts are always labeled theory.

Welcome to Rockefeller and Peter G. Peterson's Sesame Street, they own it and allow us to live there forever in debt peonage.


Centurion9.41's picture

Why marvel?

Greenspan, and the rest of the lot, are scum bags whose moral system is far far different than most American's.  

And most American's have been lead to believe two lies: one that morality really doesnt matter; and the other that all religious systems of belief are essentially the same.

Whoever walks into a business arrangement and treats any non-Christian with the same assumptions of ethics as they would apply to a Christian is an idiot.  In many non-Christian faiths, it is not immoral to lie to someone of another faith; it's not encouraged, but it's also not treated like the Christian concept of it being a "sin".

The laws of usery in western legal tradition just didnt "happen" out of thin air. 

carbonmutant's picture

Something in this value chain is guaranteed to vaporize...

de Cosmos's picture

Insurance also requires the insured person to have an 'insurable interest' in the thing being insured.  You don't need any interest in the credit to buy a CDS. 

When you strip away all the hype and obfuscation, these things are really just elaborate bets placed with bookies.

Centurion9.41's picture

Exactly.  And that concept and principal has been around for over a hundred years.

All the politicians, bankers, and regulators knew it and looked the other way because the political leadership created monetary and legal incentives, thereby encouraging business models based on these incentives, to be built.

This is the real Big Lie being obfuscated by big liars like BR.

oogs66's picture

Maybe buying CDs on Greece is a hedge against too much debt in system as a whole

Augustus's picture

If the AIG FP products had been treated simply as European style Put Options and run through a clearing house with collateral required, the whole thing would have been halted in the early days.  It is still not clear to me why this was not insisted upon in the cleanup legislation.  Sure, I  am aware of the lobbying to not have it.  But any legislator with half of a clue can understand that posting the collateral will limit exposure.  That is really about all it would take to stabalize the whole system.

Amish Hacker's picture

You're probably right, Augustus, but I guess I'm still waiting for a "legislator with half of a clue." All I'm seeing is politicians in need of hundreds of millions of re-election dollars being real nice to the people who have hundreds of millions of dollars. 

azusgm's picture

Put 'em on an exchange. That will fix it. The CME served the MF Global customers really well.

bugs_'s picture

why buy insurance when you can never collect?

the bookies will MF you

Vampyroteuthis infernalis's picture

These contract were written by the insurance companies and the banksters with the idea the entities would never fail. In other words, they would NOT need to pay out. This is what trashed LTCM leveraged 100:1 and the Russian default hit.

Centurion9.41's picture


The job of business is to create products that create as much return on capital as possible.

A job of the politician's and regulators is to ensure the law does not incentivize an unstable or unsustainable business environment.

Politicians created laws that did create insentives to create unstable and unsustainable businesses.  And they did so at the very heart of the economic system, the banks.

azusgm's picture

It's a matter of the US trying to compete with the City of London for bankster tax bucks.

digalert's picture

I remember GS and MS scrambling to become a "bank" back in '08. Before the TARP (Toxic Asset Rescue Plan). Remember way back then, it was about the poor homeowners and how they must be saved from foreclosure. One might think that at the time, MS and GS knew a bailout was coming.

Centurion9.41's picture

Overall, a pretty good piece. But I fear Peter has fallen into rabbit-hole.

"CDS may be unregulated, but when virtually every big financial company in the world has large notionals on with AIG, huge mark to market gains on those positions, no collateral from AIG, and big shorts in AIG CDS, couldn’t someone do their job? This should have been noticeable in 2007!"

Really?  Please, this "should have been noticeable" meme that runs through the piece is incredulous.  People did notice, and speak out.  The head of the CFTC was fired by Clinton after Greenspan, Summers, Rubin, and the banking cabal warned the questions she raised would cause the largest financial crisis since WWII.   PBS, who I'm not touting as an un-biased source, made a documentary "The Warning" all about this.

Regulators, policy makers and politicians in positions that should have known did know and failed to act.  All of them are at best culpable enablers, and IMO far worse.  To insinuate otherwise ignorant or to wilfully join league with the lot. 

Seriously? Are we to believe, Clinton the great crusader for the little people, didn't say "hey, if it's this big and dangerous we should...."?  Likewise for all the politicians?

Those who assert these public servants are not knee deep in culpability are extremely ignorant of the dynamics surrounding civil service positions and the civil service corps. There is no true incentive to do anything other than what one is instructed to do by a superior.  To make matters worse, from a protect the public perspective, there is a real danger to losing one's job if they speak up too loudly.

This situation sets up an environment where the leadership can exert tremendous influence and if caught ignoring something can claim ignorance and state they will in the future do a better job. 

And the the politician provides cover by an absurd assertion of "well we can't fire the experts, otherwise we will really be abused by the capitalists".  An absolutely false assertion to decieve you and enable them to keep running their game on an ignorant and lazy American public. 

Anyone with a BS/BA that required a strong foundation in mathematics could have cut through all the BS.  Sadly, most business and MBA students do not have a strong foundation in mathematics.  It is a lie to claim their mathematical training is "the same" as that of their mathematics or physics contemporaries, just simply focused on business.  The educational system is a failure, and commentary in the blogosphere proves it every day. 

Please, stop the nobody could have seen this coming BS.  It's a lie.

sgt_doom's picture

Anyone with a BS/BA that required a strong foundation in mathematics could have cut through all the BS.

Jaysus, Centurion9.41, you're not supposed to be speaking the truth here and nowadays.

I mean, next you'll be going on about all the predatory legislation they passed allowing this to happen (Private Securities Litigation Reform Act of 1995, GLB Act of 1999, CFMA of 2000, etc., etc., etc.) and explain about the Group of 30, and JPMorgan's conferring with one another on the spread of credit derivatives and legal risk had to be removed first, then Wall Street's Derivatives Policy Group (see link below) to lobby for passage of said financial fraud and predatory legislation.

Derivatives Policy Group (DPG)

Representatives of six large non-bank OTC derivatives dealers who worked with the CFTC and SEC to design voluntary oversight procedures for OTC derivatives activities of unregulated securities firm affiliates. The principal concerns of the group were management and monitoring of risk, voluntary reporting to regulators, capital sufficiency, and the relationships of dealers and end-users of derivatives.

Geez, let's not even mention that George W. Bush's great grandfather was the first president, and one of the founding members of, the National Association of Manufacturers!

Or who that FBI director, Robert Mueller III, is related to.

Or all of Obama's neocon appointments, highly reminiscent of Bush #2's, and Clinton's, and Bush #1's and Reagan's neocon administrations.

Ssssshhhhh....this is supposed to be secret.

Centurion9.41's picture

"next you'll be going on about all the predatory legislation they passed allowing this to happen"

- No, it didnt ALLOW for it to happen, they CREATED THE INCENTIVES FOR THE BUSINESSES TO BE BUILT.  The politicians didnt "allow" for the monster to be created, they CREATED the monster.

As for the rest... sorry, not going down that rabbit-hole.  But yes, you are right, incest only applies to biology the masses.  Not to the relations of the self-proclaimed elite.

realitybiter's picture

Brooksley Born said all this already.  thank you.


The reason Summers, Rubin, Gramm, Greenspan, and the dupes known as Congressmen went along with the scuttling of proper regulation of CDS' was because that would make them very expensive and no one would buy them.  Anybody buying mortgage insurance that doesn't have to by law?  that is right.  no one.  It is regulated and watched and too expensive.


There is no need for CDS'.  They inherently add risk because bankers can simpy buy a CDS for cheap and take risk to who gives a shit if you have job and can't repay the loan or if the bundled loan product is full of toxicity....its all insured!!

with more crap.  Crap Disguised  (as) Security.  

q99x2's picture

Roubini said on CNBC that it was a positive for the markets that the CDS were being paid out. So I guess it is nothing a lawyer and a crooked committee cannot re-interpret the way that works out best.

I believe Roubini is still trying to sell his company and that he cut a deal with CNBC to promote the NWO's agenda in exchange for them to no longer refer to him as Dr. Doom. How much would you pay for a company from a Dr. Doom?

sgt_doom's picture

sgt_doom, the real Doom, concurs....

Centurion9.41's picture

"It is not that CDS should or shouldn’t be an insurance contract,....."

BS. This is where Peter loses my confidence and I begin to believe he's just another commentator whose real motive is supporting that which supports his business.

The problems IS all about the fact that CDS' were not required to be treated like insurance contracts in that they werent required to have sufficient direct reserves, accountable and transparently marked.  That is at the root of the problem.  If appropriate reserve requirements were mandated, none of this could have happened.  The same BS occured in the history of insurance, hence why it is so stringently regulated and has such high reserve requirements.

Yes, IF the CDS were required to be on an exchange the question would have been moot.  However the reason they were not is there is no way to standardize the contracts.  This fact is one reason insurance is not on an exchange, insurance is a tailored non-standardized product. 

CDS' and insurance are both tailored/non-standardized financial products that if not required to maintain sufficient reserves can grow to create a fatal systemic risk to an economic system.

To claim the world was ignorant, or this time was different, or it's too confusing for people outside the finance industry with years of experience to understand is utter BS and a lie.

All the long winded pieces like Peter's have a vested intrest in creating confusion.  Peter is in the macro trade business, this CDS shit is and was its lifeblood.  If you read Peter's piece thinking you're getting an honest clear explaination, I have a mobster who wants to sell you a bridge.

The story of what happened, like all human history, is long and complex.

But the mechanics of what happened, just like a Ponzi scheme, are very very simple and could have been avoided by very very simple regulation.

The reason it's "complicated" to now undo what has been done, is that there's a huge socialist economic system that is dependent upon the Goldberg machine built for the pigs to get to the fiat teats. 

All the poliitics know if they disconnect the Goldberg machine, all the piggy's are going to very quickly turn feral. 

So the political system is left with two kinds of politicians: one who simply wants to kick the can down the road, get what they can out of the system, and get out of dodge before it collapses; the other is a parasite that wants to use the situation to create the fears necessary to errect an even greater Goldberg machine to gain greater control and power.  The latter is arrogant enough to think they can do so before everything collapses, and they're so ignorant they refuse to believe what occured after WWI and what they see taking place in Europe.


The global fiat collapse will come when China has a real deep, hard "landing".  Their first "capitalist crash".



oogs66's picture

95% at least IS standardized. What AIG did were specialized things almost exclusively tied to sub prime.

earleflorida's picture

great post! thankyou for your astute insight, Peter

ItsDanger's picture

AIG's main problems was the pricing of the CDS, lack of capital (no regulation either) and lack of reinsurance of that risk.

Dollar Bill Hiccup's picture

Politician ...  create a fair ... more stable system ?

Rather implausible to put all those things together in one sentence, isn't it?

Sechel's picture

What non-sense. AIG operated outside the guise of insurance regulators by a complex shell game and picking their regulators making sure the London Operation was not regulated by a competant regulator who had the requisite domain knowledege. Rember C.K. Lee?

CDS took down more than AIG, it basically took down the entire financial sector of the United States, creating risk not reducing it. This is because too many positions were naked positions. 

As far as why make it insurance. Personally I'd ban the product, but the point is that by treating it as such there would be more assurance that monies would be available. This same thing could be handled by exchange trading, clearing firms and posting sizable margin with one caveat;  You can only post too much or not enough.  When an event is about to happen, suddenly no margin other than 100% is enough.

The point about a committee deciding if Greece defaulted is a good one. That there needs to be a committee decision makes this product look more like insurance in that you submit a claim. 

But insurance means you are protecting something you own or have an interest in.  Often that's not the case and that makes this product look like pure bucket shop trading that was banned after the crash of 1907.  We don't seem to have learned from our mistakes.

Centurion9.41's picture

I dont think you understand what you are talking about.

"insurance means you are protecting something you own or have an interest in"

Yes, but that's irrelevant.  What matters is the simple fact of writing a contract for which you have no ability to make good on.  No different than taking a deposit to build something but never having the ability to build it.

"This same thing could be handled by exchange trading"

No it could not, CDS' are not standardized.  It is impossible to create an exchange for a product that has no standardization. 

Sechel's picture

Swaps are often made non-standard for no other reason than to obfusccate pricing. That CDS are often not standardized is an argument often made by those who want ot keep things as they are.  Most participants, if they knew the rules, could deal with standardized contracts, which would only enhanced liquidity. Think of oil commodity contracts on exchanges, they'll specify some reference crude and time of delivery etc, works pretty well for most everybody. The need to custom-tailor is mostly b.s.


oogs66's picture

Corporate, sovereign and index CDS are extremely standardized. And are the bulk of all trading