how come CDS dont trade standardized like options

noob_trad3r · Aug 4, 2009

Where you can write covered calls on your bond holdings or sell puts on bonds secured by cash etc..

Where you just go to a Bonds options screen and pick a symbol that represent a put/call, strike price and month just like equity options.

and have a bond options clearing house etc..

why did they let bonds be treated differently I heard more CDSes exist than actual bonds etc..

thats how we get into trouble.

circadian · Aug 4, 2009

Think of all of the debt markets that exist. Organizing exchanges and clearing houses for all of these markets/instruments and the proposed standardized options on them would be a behemoth task. I think it's a novel idea, and have often wondered about it myself. I just think that it would be too massive of an undertaking. That's just my opinion.

On a different note, it's 12:52 CST, and the equity market internals are falling apart.

Landis82 · Aug 4, 2009

Quote from noob_trad3r:

why did they let bonds be treated differently I heard more CDSes exist than actual bonds etc..

thats how we get into trouble.

Because Republican Phil Gramm spearheaded the "Commodity Futures Modernization Act of 2000" that allowed CDS to be unregulated and trade OTC, under the desk.

His legislation also allowed for West Texas Intermediate crude oil to be traded in Dubai and London without any CFTC oversight, position limits, etc.

Thank You Phil.

You were a terrific Statesman for the people of the United States of America.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

sjfan · Aug 4, 2009

No. That's not why. The development of CDS is related to the development of interest rate swaps which came in the late 80s, 90s (same concept of ISDA is used as the contract document for both).

It was developed for institutional users as opposed to retail. Thus, it fell outside of the usual listing and clearing regulations.

Quote from Landis82:

Because Republican Phil Gramm spearheaded the "Commodity Futures Modernization Act of 2000" that allowed CDS to be unregulated and trade OTC, under the desk.

His legislation also allowed for West Texas Intermediate crude oil to be traded in Dubai and London without any CFTC oversight, position limits, etc.

Thank You Phil.

You were a terrific Statesman for the people of the United States of America.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

nelsanity · Aug 4, 2009

update if you are interested.

April 8th 2009 ... North American Corporate CDS are now standardized as either trading 100,500 bps upfront (SNAC)

Europe followed sometime last month I want to say (STEC)

next steps are for central clearinghouse.

Landis82 · Aug 4, 2009

Quote from sjfan:

No. That's not why. The development of CDS is related to the development of interest rate swaps which came in the late 80s, 90s (same concept of ISDA is used as the contract document for both).

It was developed for institutional users as opposed to retail. Thus, it fell outside of the usual listing and clearing regulations.

There are plenty of derivative contracts that are tailored towards institutional investors yet still are cleared via a clearing house and are subject to SEC and/or CFTC jurisdiction and regulation.

Martinghoul · Aug 5, 2009

The process of transitioning the clearing of OTC derivatives to CCPs (Central Clearing Counterparty) has already started. ICE is currently the leader in CDS clearing:
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_XaG9y5cvPA&refer=news

For interest rates OTC trades LCH has done such a good job netting off Leh exposure that there's all sorts of work happening that would allow IRS to clear through LCH.

So centrally cleared common OTC derivatives are really not that far off, IMHO. Whether all the mktplace problems will be addressed by this remains to be seen.

sjfan · Aug 5, 2009

And there are plenty of ones that do not. Those are the ones you've never hear about. (ie, insurance wrappers, [random shit x]-to-[strange crap y] swaps, CDX swaptions... the list is long)

Quote from Landis82:

There are plenty of derivative contracts that are tailored towards institutional investors yet still are cleared via a clearing house and are subject to SEC and/or CFTC jurisdiction and regulation.