Dealers plan two-tier pricing for CDS

April 2, 2015 7:49 PM

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LONDON, April 2 (IFR) - Two-tier pricing could soon be adopted for single-name credit default swaps, based on whether or not contracts are centrally cleared. Dealers are considering the drastic move to reflect the rising costs of uncleared derivatives exposures under Basel III capital and leverage rules, which have forced some banks to reconsider their commitment to the product.

Although split pricing is commonplace in the interest-rate swap market, banks have been reluctant to change the status quo in CDS for fear it could kill off already sluggish activity. As such, a number of dealers are understood to be in discussion behind the scenes for an industry-wide shift.

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