NEW YORK May 16 Emerging market credit default
swap trading volumes in the first quarter fell 23 percent
compared with the same period a year ago, as Greece's credit
restructuring and anticipated regulatory changes weighed, a
survey showed on Wednesday.
Trading volumes for emerging market CDS dropped to $235
billion in the first quarter from $306 billion in the first
quarter of 2011, according to EMTA, the trade association for
the emerging markets debt trading and investment industry.
CDS are used by investors to help protect fixed-income
investments from defaults or restructurings.
A number of factors contributed to the decline, "including
speculation that the Greek restructuring might not trigger CDS
(which proved false), an expected ban of 'naked short' CDS
contracts in Europe, and higher standards in capital
requirements resulting from anticipated regulatory changes,"
Hongtao Jiang, emerging markets strategist at Deutsche Bank,
said in EMTA's statement.
Volumes were down 1 percent from the $234 billion reported
in the fourth quarter of last year.
Jiang said historically first-quarter volumes are typically
much higher than what is traded in the fourth quarter and the
decline confirms a drop in secondary market liquidity for
emerging market CDS contracts.
"Such a decline is more pronounced when one considers the
record amount of EM hard currency issuance during January and
February, and the large amount of short covering and risk-adding
activities at the beginning of the year," Jiang said.
Brazil had the most active CDS trading, with $51 billion in
volume. Turkey had $24 billion and Mexico followed with $18
billion in trades.
Russian state-owned energy company Gazprom was the
most active corporate CDS contract at $5 billion, while Mexican
state-owned oil company Pemex had $1 billion in CDS trades
during the quarter.
EMTA said the latest quarterly survey of emerging market CDS
trading volumes came from 13 major international banks and
The survey offers a snapshot of trading volumes by combining
data on the notional value of CDS trades and includes rollovers
but not netting trades or internal transfers for 19 sovereign
and nine corporate credits.