Good news on the CDS front: Markit and Creditex are quietly and efficiently netting out contracts, bringing down notional amounts in single names alone by more than $1 trillion at this point.
This is a sensible way to reduce risk in the CDS market: instead of trying to net out a huge number of contracts in one big session, bring down notionals slowly, week in and week out. Here’s the chart showing how many CDS have been compressed on a week-by-week basis: as you can see, if anything the amount is rising over time, with last week seeing a record $224 billion compressed. As this process continues, systemic risk is reduced and positions are helpfully clarified. It’s not an alternative to an exchange, but there’s a lot to be said for doing something now rather than hoping to do something bigger later.