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Dealers plan two-tier pricing for CDS 

April 7, 2015

Helen Bartholomew​, IFR via Reuters

Two-tier pricing could soon be adopted for single-name credit default swaps, based on whether or not contracts are centrally cleared. Dealers are considering the drastic move to reflect the rising costs of uncleared derivatives exposures under Basel III capital and leverage rules, which have forced some banks to reconsider their commitment to the product.

Although split pricing is commonplace in the interest-rate swap market, banks have been reluctant to change the status quo in CDS for fear it could kill off already sluggish activity. As such, a number of dealers are understood to be in discussion behind the scenes for an industry-wide shift.

"No one wants to be the first to do this, but no one wants to be the last either. It will probably happen this year," said a credit trading head at a European firm.

He believes that the trigger event for such a change may come in the form of the clearing mandate for interest rate swaps under the European Markets Infrastructure Regulation, slated for implementation later this year.

Read more: Reuters

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