The SEC made available analyses of data on the reporting and dissemination of security-based swap transaction information through two memorandum.
The memos, which are available on the SEC’s website, examine the effect of the CFTC-mandated post-trade transparency in the index credit default swaps (“CDS”) market on total credit exposure, trading volume, and trade size in the index CDS market. They also discuss if and how dealers may hedge any large notional exposures that result from executing trades with their customers.
The first memo, titled “Analysis of Post-Trade Transparency under the CFTC Regime,” found that there is little empirical evidence that the introduction of post-trade transparency in the index CDS market resulted in reduced trading activity, liquidity, or risk exposure.
The second memo, titled “Inventory Risk Management by Dealers in the Single-Name Credit Default Swap Market,” provides some description of the manner in which dealers may hedge CDS transactions.
Lofchie Comment: It would be helpful if the data underlying the SEC’s economic analysis would be made available to third parties who could also analyze it. That said, the SEC’s report on trade transparency did not find any appreciable damage done by increased transparency nor did it address the question of whether the transparency actually provided a material benefit. Of course, a rule should be justified by the good it will do, rather than by the likelihood it will avoid damage.
See: Analysis of Post-Trade Transparency under the CFTC Regime; Inventory Risk Management by Dealers in the Single-Name Credit Default Swap Market; SEC Press Release.