{"id":48093,"date":"2009-11-25T05:08:00","date_gmt":"2009-11-25T10:08:00","guid":{"rendered":"http:\/\/www.businessinsider.com\/credit-default-swaps-are-too-big-to-ban-2009-11"},"modified":"2009-11-25T05:08:00","modified_gmt":"2009-11-25T10:08:00","slug":"credit-default-swaps-are-so-huge-that-they-cant-be-banned","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/48093","title":{"rendered":"Credit Default Swaps Are So Huge That They Can’t Be Banned"},"content":{"rendered":"

Despite regulatory threats on the horizon, the outlook for the credit default swaps (CDS) market remains bright. While the CDS market’s notional value of outstanding contracts fell 14% in 2009, it’s still at massive $36 trillion of notional value.<\/p>\n

Swaps brokers and clearinghouses don’t appear worried about its future according to DealBook<\/a>.<\/p>\n

DealBook:<\/a> …trading in swaps has so far survived the crisis and market reforms are on the way. Barring unexpectedly draconian regulatory changes, a comeback looks likely, Breakingviews says.<\/p>\n

…<\/p>\n

it looks likely that reforms to improve the market’s workings will trump the idea of shutting it down. With that in mind, forecasting a return to robust market growth makes sense, according to Breakingviews. Central clearinghouses and electronic trading led the energy derivatives market to bloom in recent years. The return of credit risk-taking wouldn’t please everyone, Breakingviews concedes, but the credit-default swaps market could emerge bigger and stronger, too.<\/p>\n

Despite the regulatory risk, recent data supports this view that the credit default swaps market will continue to grow. For example interdealer broker ICAP’s recent interim results<\/a> showed that the company’s credit-related trading revenue 37% year over year, despite all the scorn.<\/p>\n

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Thus we’ll take DealBook’s view a step further — even draconian regulation won’t be able to stop this market’s expansion. What you might ban in the U.S. or Europe will simply move offshore.<\/p>\n

the end it isn’t crazy that bondholders might want to purchase insurance against default. Given the gigantic size of the global bond market and today’s technology, someone will find a way to meet this massive need. Thus less regulation would be better than more, since it would keep these markets onshore and under closer supervision.<\/p>\n

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