Fitch unit develops new CDS liquidity assessment

LONDON, Nov 27 (Reuters) - Fitch Solutions said on Thursday it has developed a new way to assess the liquidity of credit derivative assets, to help banks better manage their liquidity risk and identify the most heavily traded credit default swaps.

The new assessments, or "scores", will cover more than 3,000 of the most widely traded CDS. Each asset will be assigned a score, from the least to the most liquid, and then a global percentage will be given comparing the asset's liquidity profile against the global CDS market.

This will help risk managers compare the relative liquidity of assets across regions, sectors and rating bands, Fitch Solutions said.

"Given the market focus on liquidity risk, and recent Basel Committee guidance, understanding the relative liquidity of assets is critical for banks in assessing how they fund their short term liabilities and helping them to meet regulatory commitments," said Thomas Aubrey, managing director of Fitch Solutions in London.

CDS are used to hedge against the risk of corporate or other borrowers defaulting on their debt as well as to speculate on a borrower's credit quality.

Fitch Solutions, the non-ratings business of credit rating agency Fitch Ratings, develops products, analysis and services related to the pricing and liquidity of credit derivatives.

The Depository Trust & Clearing Corporation (DTCC), which clears the majority of CDS trades, earlier this month published for the first time a list of the largest 1,000 CDS names amid criticism over the openness of the contracts.

Their data showed that Italy, Spain and Deutsche Bank (DBKGn.DE) have the largest amount of credit default swap protection on their debt. (Reporting by Natalie Harrison; editing by Simon Jessop)