CDS deal volumes, backlogs fall in June -Markit

LONDON, July 21 (Reuters) - The average deal volume of major dealers in the credit derivatives market fell below 20,000 in June, while backlogs in confirming trades decreased to pre-crisis levels, a report from Markit showed on Monday.

Average credit default swap (CDS) deals per dealer fell to roughly the same levels as March 2007, down from almost 25,000 in March this year and an all-time high of around 26,000 in August 2007, according to graphs in a quarterly report published by Markit.

Many investors turned to the CDS market during the credit crisis to hedge or make bets on the direction of spreads, leading to concerns of a breakdown between counterparties.

Backlogs in trade confirmations are typically used as an indicator of the market's vulnerability to a breakdown.

Average outstanding confirmations per dealer fell below 4,000 in June, levels last reached in late 2006 and early 2007 before the credit crisis slammed the market.

Measured in business days, outstanding confirmations fell to about four business days in June from about 5.5 in March and 10 days in August 2007. This figure is calculated by dividing the number of outstanding confirmations in a month by total deal volume and multiplying by the number of business days in that month.

In August 2005, backlogs had reached as long as 90 days, prompting the New York Federal Reserve too call major dealers to a meeting that led to protocols and other practices to clear trades faster and reduce the backlog.

But the growth of the market in the credit crisis put pressure on banks' back offices to keep up with the jump in volumes.

In the equity derivatives market, Markit graphs showed the average trading volume rising slightly to more than 7,000 deals in June, while the backlog in number of business days stayed flat at around 11 days.

For interest rate derivatives, average trading volume rose to a high of nearly 20,000 in June from around 16,000 in March, while the backlog in business days declined to a low of around eight from around 10.5 in March.

Electronic trading for the first time accounted for more than 50 percent of volume in the interest rate derivatives market, the graphs showed. (Reporting by Jane Baird; editing by Sue Thomas)