On January 20, 2013 Kamakura Corporation reported on trading volume in credit default swaps for non-U.S. banking firms for the 129 weeks ended December 30, 2012. This note updates that analysis for the 155 weeks ended June 28, 2013. We confirm our earlier results that there is minimal end-user trading in single name credit default swaps on the international banking sector.
We analyze credit default swap trading volume for the non-U.S. banking firm reference names among the 1,144 reference names for which CDS trades were reported by the Depository Trust & Clearing Corporation during the 155 week period ending June 28, 2013. The weekly trade information is from the Section IV reports from DTCC. The data is described this way in the DTCC document "Explanation of Trade Information Warehouse Data" (May 2011):
"Section IV (Weekly Transaction Activity) provides weekly activity where market participants were engaging in market risk transfer activity. The transaction types include new trades between two parties, a termination of an existing transaction, or the assignment of an existing transaction to a third party. Section IV excludes transactions which did not result in a change in the market risk position of the market participants, and are not market activity. For example, central counterparty clearing, and portfolio compression both terminate existing transactions and re-book new transactions or amend existing transactions. These transactions still maintain the same risk profile and consequently are not included as 'market risk transfer activity.'"
We again confirm that our emphasis is not on gross trading volume. As of July 5, 2013, dealer-dealer trading volume made up 75.16% of all single name credit default swaps that were live in the DTCC trade warehouse at that point in time. It would be nearly costless for dealers to inflate gross trading volume by trading among themselves. Instead, we focus on "end user" trading where at least one of the parties to a trade is not a dealer, as defined by the DTCC. Accordingly, we make the following adjustments to the weekly number of trades reported by DTCC for each non-U.S. banking reference name:
- We divide each weekly number of trades by 5 to convert weekly trading volume to an average daily volume for that week.
- From that gross daily average number of trades, we classify 75.16% of trades as "dealer-dealer" trades, using the average "dealer-dealer" share of trades in the DTCC trade warehouse as of July 05, 2013.
- The remaining 24.84% is classified as daily average "non-dealer" volume, the focus of the reporting below.
Daily Non-Dealer Trading Volume for International Banking Reference Names
Of the 1,144 reference names for which DTCC reported credit default swap trades in the 155 week period ending June 28, 2013, 102 were non-U.S. banking firms. The top 10 in trading volume are listed here:
- BANCO SANTANDER, S.A. (NYSE:SAN)
- BANCO BILBAO VIZCAYA ARGENTARIA, SOCIEDAD ANONIMA (NYSE:BBVA)
- COMMERZBANK AKTIENGESELLSCHAFT (OTCPK:CRZBY)
- INTESA SANPAOLO SPA (OTCPK:IITOF)
- DEUTSCHE BANK AKTIENGESELLSCHAFT (NYSE:DB)
- BARCLAYS BANK PLC (NYSE:BCS)
- CREDIT AGRICOLE SA (OTCPK:CRARY)
- THE ROYAL BANK OF SCOTLAND PUBLIC LIMITED COMPANY (NYSE:RBS)
- UNICREDIT, SOCIETA PER AZIONI (UCG)
- BNP PARIBAS (OTCQX:BNPQY)
The full list of international banks on which there was at least one credit default swap trade reported by DTCC includes the following names:
ABN AMRO BANK N.V.
ALLIANCE & LEICESTER PUBLIC LIMITED COMPANY
ALLIED IRISH BANKS PUBLIC LIMITED COMPANY
ANGLO IRISH BANK CORPORATION LIMITED
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
BANCA ITALEASE S.P.A.
BANCA MONTE DEI PASCHI DI SIENA S.P.A.
BANCA NAZIONALE DEL LAVORO S.P.A.
BANCA POPOLARE DI MILANO SOC. COOP. A R.L.
BANCO BILBAO VIZCAYA ARGENTARIA, SOCIEDAD ANONIMA
BANCO COMERCIAL PORTUGUES, S.A.
BANCO DE SABADELL, S.A.
BANCO ESPIRITO SANTO, S.A.
BANCO POPOLARE SOCIETA COOPERATIVA
BANCO POPULAR ESPANOL, S.A.
BANCO SANTANDER, S.A.
BANK OF CHINA LIMITED
BANK OF INDIA
BANK OF SCOTLAND PLC
BARCLAYS BANK PLC
BAWAG P.S.K. BANK FUER ARBEIT UND WIRTSCHAFT UND OESTERREICHISCHE POSTSPARKASSE AKTIENGESELLSCHAFT
BNP PARIBAS FORTIS
CAIXA D'ESTALVIS I PENSIONS DE BARCELONA
CAIXA GERAL DE DEPOSITOS, S.A.
CAJA DE AHORROS DE VALENCIA, CASTELLON Y ALICANTE, BANCAJA
CAJA DE AHORROS Y MONTE DE PIEDAD DE MADRID
CATHAY FINANCIAL HOLDING CO., LTD.
CHINA DEVELOPMENT BANK CORPORATION
COMMONWEALTH BANK OF AUSTRALIA
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.
CREDIT AGRICOLE SA
CREDIT SUISSE (USA), INC.
CREDIT SUISSE GROUP LTD
DANSKE BANK A/S
DBS BANK LTD.
DEUTSCHE BANK AKTIENGESELLSCHAFT
DEXIA CREDIT LOCAL
DNB BANK ASA
DNB NOR BANK ASA
ERSTE GROUP BANK AG
EXPORT-IMPORT BANK OF INDIA
HSBC BANK PLC
HSBC FINANCE CORPORATION
IKB DEUTSCHE INDUSTRIEBANK AKTIENGESELLSCHAFT
INDUSTRIAL BANK OF KOREA
ING BANK N.V.
ING VERZEKERINGEN N.V.
INTESA SANPAOLO SPA
JOINT STOCK COMMERCIAL BANK-BANK OF MOSCOW (OJSC)
JOINT STOCK COMPANY 'HALYK BANK OF KAZAKHSTAN'
JOINT STOCK COMPANY 'HALYK SAVINGS BANK OF KAZAKHSTAN'
JSC VTB BANK
LLOYDS TSB BANK PLC
MACQUARIE BANK LIMITED
MIZUHO CORPORATE BANK, LTD.
NATIONAL AUSTRALIA BANK LIMITED
NATIONWIDE BUILDING SOCIETY
NORDEA BANK AB
NORTHERN ROCK (ASSET MANAGEMENT) PLC
OVERSEA-CHINESE BANKING CORPORATION LIMITED
RAIFFEISEN BANK INTERNATIONAL AG
RAIFFEISEN ZENTRALBANK OESTERREICH AKTIENGESELLSCHAFT
RESONA BANK, LIMITED
RUSSIAN AGRICULTURAL BANK
SHINSEI BANK, LIMITED
SKANDINAVISKA ENSKILDA BANKEN AB
SMBC CONSUMER FINANCE CO.,LTD.
STANDARD CHARTERED BANK
STATE BANK OF INDIA
SUMITOMO MITSUI BANKING CORPORATION
SVENSKA HANDELSBANKEN AB
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD.
THE EXPORT-IMPORT BANK OF CHINA
THE EXPORT-IMPORT BANK OF KOREA
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
THE KOREA DEVELOPMENT BANK
THE NORINCHUKIN BANK
THE ROYAL BANK OF SCOTLAND N.V.
THE ROYAL BANK OF SCOTLAND PUBLIC LIMITED COMPANY
UNICREDIT BANK AG
UNICREDIT, SOCIETA PER AZIONI
UNIONE DI BANCHE ITALIANE SOCIETA COOPERATIVA PER AZIONI
UNITED OVERSEAS BANK LIMITED
WESTPAC BANKING CORPORATION
No credit default swap trades were reported in the 155 weeks ending June 28, 2013 for any other non-U.S. banking firms.
Analysis of Daily Average Non-Dealer Trades Per Day
We first analyze the weekly averages for the 102 non-U.S. banking firms for which CDS trading volume was greater than zero during the 155 weeks ending June 28, 2013. The daily average non-dealer trading volume, calculated as described above, was distributed as follows:
The conclusions that can be drawn from this table are summarized here:
- 79 of the 102 international banks had trading volume that averaged less than one non-dealer CDS contract per day over the 155 weeks ending June 28, 2013.
- 89 of the 102 international banks had trading volume that averaged less than two non-dealer CDS contracts per day over the 155 weeks ending June 28, 2013.
- None of the 102 international banks had trading volume that averaged more than 5 non-dealer trades per day in the 155 weeks ended June 28, 2013.
- The average number of non-dealer trades per day over the period studied was 0.73 trades.
- The median number of non-dealer trades per day over the period studied was 0.29 trades.
We conclude that, like the 1,144 reference names overall, trading volume for the 102 international banks with CDS traded during the 155 weeks ending June 28, 2013 is minimal when analyzed on a non-dealer daily average basis.
Analyzing Trading Volume in Aggregate
We now analyze all 155 weeks of data, not just the average over that period, for all 102 international banks for which DTCC reported non-zero trade volume. There were 15,810 = 102 x 155 observations on CDS trading volume for these 102 banks, and there were no trades for 5,330 observations, 33.71% of the total. The distribution of non-dealer trades per day over these 15,810 observations is summarized in the following chart:
One can draw the following conclusions over 15,810 weekly observations:
- 79.89% of the observations showed 1 non-dealer trade per day or less.
- 97.50% of the observations showed 5 non-dealer trades per day or less.
- 99.70% of the observations showed 10 non-dealer trades per day or less.
- Only 0.30% of the observations were for more than 10 non-dealer trades per day, just 48 of the 15,810 observations.
- The highest volume week featured 356 gross trades per week, 71.2 gross trades per day, and 17.7 average non-dealer trades per day.
As we stated above, this confirms that there is minimal trading volume in the 102 international banks on which CDS trades were reported by DTCC in the 155 weeks ended June 28, 2013.
Detailed Information on CDS Trading Volume by Individual Reference Name
The international banks with the highest trading volume over the period studied are listed in the following table:
The graph below shows the weekly gross number of contracts traded over the full 155 week period for Banco Santander, S.A.:
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Kamakura Corporation has business relationships with a number of the firms mentioned.