by Huw Jones
LONDON (Reuters) – The European Commission will propose greater transparency in the trading of CDS (“credit default swaps”) of eight large banks to align with the rules in force on the American market, shows a document from Brussels consulted on Wednesday by Reuters.
An issuer’s CDS (“single-name CDS”) have come under increased scrutiny since the fall of Credit Suisse, which was taken over in a hurry by its great rival UBS, triggered high volatility in this market for certain systemically important banks, such as Deutsche Bank.
“One of the conclusions of the events of March 24 is that an issuer’s CDS contracts are opaque and illiquid,” the Commission said in a document ahead of a meeting between member states on Thursday.
This would explain why a single CDS contract can trigger large movements in the price of the bond and the action of the entity in question, according to the EC document, which proposes “targeted amendments” to post-transparency obligations. trading in over-the-counter derivatives transactions.
The Commission’s project concerns the CDS of Santander, BNP Paribas, Crédit Agricole, Deutsche Bank, ING, Intesa Sanpaolo, Société Générale and DZ Bank.
EU countries and the European Parliament are currently negotiating an update to the European MiFID II directive in which an enhanced transparency requirement would be incorporated.
According to the EC document, a comparative analysis of EU and US rules on post-trade public disclosure of an issuer’s CDS shows an “asymmetry” between the two markets.
US derivatives regulators require the publication of a CDS transaction as soon as technically possible, typically within 15 minutes for volumes over five million dollars.
In Europe, trades are published on the second business day following the trade date, with a delay in some cases of up to four weeks with regulatory approval.
Earlier on Wednesday, Banque de France Governor Francois Villeroy de Galhau called for a “better understanding of transactions” in the single-name CDS market.
“The lack of liquidity and opacity of the single-issuer CDS market must no longer lead to systemic risks: the first step must be to establish a better understanding of transactions, participants and the risk of correlation with other instruments financial,” he said.
( Laetitia Volga, edited by Blandine Hénault)
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