IOSCO urges increased CDS post-trade transparency

The International Organization of Securities Commissions (IOSCO) is calling for greater post-trade transparency in the CDS (credit default swaps) market, including making the price and volume of individual transactions publicly available. IOSCO states its case in its new report Post-Trade Transparency in the Credit Default Swaps Market, encouraging each member jurisdiction to take steps toward enhancing such transparency in its own market.

IOSCO says the report’s analysis is based upon a review of relevant works of international bodies and academic literature and an examination of publicly available transaction-level post-trade data about CDS transactions before and after the introduction of mandatory post-trade transparency in certain CDS markets in the United States.

It concludes that the data do not suggest that this introduction of mandatory post-trade transparency had a substantial effect on market risk exposure or market activity for those products.

IOSCO says it also conducted a survey of market participants and other market observers regarding their use of certain publicly available post-trade data and its perceived impact on the market and considered comments received on a consultation version of the report.

The term post-trade transparency in this report refers to a regulatory system that mandates disclosure of information, widely accessible to the public, about the price and volume of each relevant transaction. The term does not refer to regulatory structures that allow for voluntary or selective disclosure of data. Because post-trade transparency requires public dissemination of information about the price and volume of individual transactions, the term also does not apply to regulatory structures that require dissemination of data (however widely) only in an aggregate form. Because the information is for the benefit of market participants and the public generally, post-trade transparency does not entail disclosure of counterparty identity.

IOSCO says it expects that additional data from jurisdictions with mandatory post-trade transparency will enable further studies of the impact of post-trade transparency in the CDS market and other OTC derivatives markets.

CDS are contracts that transfer the credit risk of a reference entity or instrument from a buyer of credit protection to a seller of credit protection. The Bank for International Settlements estimates that $16 trillion in notional amounts were outstanding in the CDS market at end-2014. IOSCO finishes by saying that it believes that improving transparency in the CDS market will increase the efficacy of G20 commitments to reform the over-the-counter derivatives markets.