Monday, October 13, 2008

The Depository Trust Makes a First Stab

The DTC, grand pooh-bah of major clearing, makes a first pass at trying to clear up misconceptions about Credit Default Swaps.

The most important:

  • At settlement, the payments are netted. That step greatly reduces counterparty risk(s). The amount that they expect (or estimate) to change hands over the Lehman default is ... circa $6 billion. That's a very small figure compared to the daily dollar amounts traded in Foreign Exchange.

Things they need to do.

  • -They should take the step of publishing the net exposures, by institutions. That will chip away at that $34 trillion figure and provide much need transparency.
  • -"less than 1%" should actually be quantified. Is it near $348 billion or is it $440 billion? How does that net out?

Things we need to do.

  • -"Vast majority" has to turn into all and every, just as soon as possible.

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