Downright love fest! The announcement last month that big Wall Street bank supported bond platform Tradeweb had, according to itself, executed the first electronically traded credit default swap ("CDS") in the U.S., EVER, had all the markings of the perfect Wall Street PR stunt.
Take the highest volume producing, big-bank-to-big-customer bond trading platform - that's Tradeweb - and have it electronically execute a couple CDSs (presumably two) for New York-based hedge fund BlueMountain Capital Management, formerly the most outspoken fund on the planet regarding CDS market oddities via its former COO Samuel Cole, who pointed out in a letter to regulators in 2009 what he deemed the unfair "oligopoly" that the world's largest several banks effectively hold in the $32.7 trillion CDS market. Put all that together and whammo!... you've got PR crunk juice immaculate baby, from heaven!
Well, Cole left BlueMountain in August last year. And the biggest CDS clearer remains the bank-created ICE, with which the banks have huge profit-sharing arrangements, and thus prefer to do business (and by threatening not to, it has been argued, maintain sub rosa control over the market). And the CME's fledgling CDS clearing operation, which Cole was vying to strengthen at the time, remains with its little flightless feathers whisking up nary a fleck of CDS clearing business nearly two years later, despite getting a smidge of one on the books in early February, with the kindly help of Deutsche Bank (the executing bank), et al. If this all sounds a bit familiar, it is: you can find similar announcements regarding interest rate swap tent shows here, here and here. (And LCH.Clearnet dominates interest rate swap clearing via SwapClear by nearly 100 percent on trades between the big banks which majority-own the London-based clearer. While U.S.-centric contenders CME Group and Nasdaq could benefit if the big banks shift their allegiance in centrally clearing interest rate swap trades with buy-side asset managers, that would only happen easily if the big banks somehow gain majority shares in CME or Nasdaq: The banks like what they can control, and share ownership trumps exchange "membership" every time, at least in the string-pulling arena. The banks could of course always roll their own, like they've done ad infinitum over the years in the over-the-counter (off-exchange) bond trading sectors, like some proprietary trading firms did most recently with the Eris Exchange, the new Chicago prop trading firm-backed exchange for trading swap futures. Look anyway for the majority of the big banks' support (read: trading volume), per usual, to go to only one venue, based on instrument and customer type, as venue dominance of trading and clearing nearly all bonds and their derivatives is neatly divided according to product and counterparty.)
So the cynic in us says the message we're meant to take from the grand Feb. 10 announcement made by Tradeweb, but almost certainly emanating from the big, CDS swingin' banks?
Look! We traded and cleared CDS, AND with that dastardly, outspoken hedge fund that was so against us, AND we cleared with two clearers, which shows competition, right?... right?... RIGHT?! (This, despite Ice's continuing overwhelming dominance, but never you mind.) Let's stay on message: So... Everything's cool in CDS land. So,... fughetaboutit! Go home and... fughetaboutit! Right as rain here. Everything is. Just... Fughetaboutit! It's done. We've done it. Quiet down, just quiet down and... fughetaboutit,... let the injection take hold, there... now... sleep... just... sleeeep... ahhhh....
Done!
P.S. Food for thought: Why didn't the banks choose MarketAxess, the big-bank-to-big-client corporate bond-focused trading platform, to trade what is the natural speculative counterpart or hedge, or heck, speculative hedge -- meaning CDS -- to coincide with the trading of corporate bonds over MarketAxess? Not enough big CDS bank equity in ol' MKTX? Are the banks finally crowning just one bond platform king?
Addendum: Banks DID remember MKTX, precisely one month later: J.P. Morgan and, you guessed it, BlueMountain, as well as some others, hopped on board corporate bond platform MarketAxess for an e-CDS ring-a-ding, which you can read about here.
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