This month should see the conclusion of the credit derivatives market’s moves to reinvent itself as a more stable and less risky industry by moving to centralized clearing in both the US and Europe. This has seen both markets adopt new CDS contracts: in the US the Standard North American Contract (SNAC) and in Europe the Standard European Contract or SEC (it’s a good job no-one had got to that acronym first). The US contract was introduced and began trading on April 8 this year – a process the market modestly dubbed "big bang" – and in Europe the SEC began trading on June 22, with the introduction of a central counterparty due on July 27 ("little bang").
The CDS market is racing to put its house in order before any money-making incentive left in the business is regulated away. According to the Depository Trust & Clearing Corp there was at least $27.5 trillion in CDS contracts outstanding at the end of April this year. This is a fraction of the wider OTC derivatives market but the instruments continue to be the focus of regulators’ ire because of public outrage over the collapse of AIG and Lehman Brothers.