A recent independent study by the National Bureau of Economic Research found that " different data sources do not reflect credit risk information equally efficiently and that CMA' Datavision  "leads the credit risk price discovery process."

The study compares the six major sources of corporate credit default swap prices (CMA, EOD, Fenice, GFI, JP Morgan and Markit), using the most liquid single name 5-year CDS of the components of the leading market indexes, (iTraxx for European firms and CDX for US firms) from 2004 to 2010.  It found systematic departures from the common trend across these data sources and the price discovery analysis across the six data sources found that CMA Datavision contributes to the "formation of prices" to a greater extent than the other data sources, providing newer and more influential information.

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On the day when KfW wired €300m to the defaulted Lehman Bros, it became clear that a new regime for risk control and counterparty risk assessment was required.

No longer could the middle office operate in an end-of day or end-of-week environment whilst the front office operated in real-time. There was a requirement to extend dynamic environments from the front office into departments responsible for managing counterparty credit risk.

This article illustrates how an institution can significantly enhance their ability to actively manage their counterparty credit exposures by using CDS market activity information provided by CMA's independent CDS data service. This article will also introduce CMA's market activity indicators, which provide CDS market information that is not contained in CDS price levels but can have a significant and valuable impact on counterparty credit assessment.

 

Download PDF - Liquidity Signals in the CDS Markets