bootdaddy
10-22-2008, 09:13 PM
For those interested in market dynamics...
http://www.creditfixings.com/information/affiliations/fixings/auctions/current.html
Here are some 2008 credit default swap auction results if you really want to stare into the abyss - you can see which prime brokerages were left holding the bag on the Lehman contracts.
Thirty days after a default event CDS contracts are settled in an auction. This is a big reason why the 3 month libor was (is) so out of control. There are some 16+ market makers for these swaps which will need to eat the contracts if your counterparty fails.
I frankly don't know how you can rely on a second party or prime broker for any hedging transactions in a time like this. The prime brokerages that make these contracts (shorts, CDSs, et al hedges) also maintain securities account. They hypothecate securities (lend out for a %) as part of their business model. If your prime broker fails, not only can your hedge contracts be worthless, but they may not be able to repurchase your securities portfolio after they have lent it out to someone who cannot fulfill their contract. The hedgies suing Lehman at the moment were caught holding that end of the stick.
At a recent conference in NYC a few days ago -- some of these hedged guys & gals had lost 20+% on their books in Oct alone because of contract defaults or some of these currency swings on the macro side. The de-leveraging will continue to be painful and prolonged.
http://www.creditfixings.com/information/affiliations/fixings/auctions/current.html
Here are some 2008 credit default swap auction results if you really want to stare into the abyss - you can see which prime brokerages were left holding the bag on the Lehman contracts.
Thirty days after a default event CDS contracts are settled in an auction. This is a big reason why the 3 month libor was (is) so out of control. There are some 16+ market makers for these swaps which will need to eat the contracts if your counterparty fails.
I frankly don't know how you can rely on a second party or prime broker for any hedging transactions in a time like this. The prime brokerages that make these contracts (shorts, CDSs, et al hedges) also maintain securities account. They hypothecate securities (lend out for a %) as part of their business model. If your prime broker fails, not only can your hedge contracts be worthless, but they may not be able to repurchase your securities portfolio after they have lent it out to someone who cannot fulfill their contract. The hedgies suing Lehman at the moment were caught holding that end of the stick.
At a recent conference in NYC a few days ago -- some of these hedged guys & gals had lost 20+% on their books in Oct alone because of contract defaults or some of these currency swings on the macro side. The de-leveraging will continue to be painful and prolonged.