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Deutsche pullback shows CDS challenges 

October 20, 2014
Christopher Whittall, IFR

Deutsche Bank has significantly scaled back single-name credit default swap trading in Europe as it struggles to meet regulatory hurdles on leverage. It is a move that is symptomatic of a wider malaise in a market wallowing in low volumes and spiralling costs.

As the market adjusts to trading a brand new CDS contract, participants say the industry giant is conspicuous by its absence in single names, capping off a two-year period that has seen an exodus of senior traders and a fall in market share in CDS trading.

Deutsche says it still makes markets in CDS products with a team of five traders in Europe, while emphasising it is trying to clear as many transactions as possible.

For uncleared CDS, such as the single-name market in Europe, the bank says its prices will reflect the economics of executing these trades – a decision that other firms say is tantamount to pulling back from European single-name CDS trading altogether.

Read more: IFR

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