In a nutshell, the DTCC Report failed to include the Credit Default Swaps that cover the CDO's. This is because the DTCC only captures 'commonly traded contracts and not privately negotiated derivatives such as those on collateralized debt obligations (CDOs).
This is a key gap in the report since the market for these customer derivatives is quite large, and it is the failures of the CDOs that are in the process of failing, and bringing down banks and other financial institutions with them.
It is not surprising that the DTCC omits the custom, or privately written, derivatives. Because each one has variations, placing these on an electronic exchange seems a daunting task indeed.
But it represents an important caveat to anyone looking at the DTCC report and then attempting to draw conclusions about the overall swaps market net exposures.
Bloomberg
Credit-Default Swap Disclosure Hides Truth on Risk at Banks
By Shannon D. Harrington and Abigail Moses
Nov. 6 -- The most comprehensive report on unregulated credit-default swaps didn't disclose bets in the section of the more than $47 trillion market that helped destroy American International Group Inc., once the world's biggest insurer.
A study by the Depository Trust and Clearing Corp. fails to include privately negotiated credit swaps that insurers such as AIG, MBIA Inc. and Ambac Financial Group Inc. sold to guarantee securities known as collateralized debt obligations, according to analysts including Andrea Cicione at BNP Paribas in London.
New York-based DTCC's report, released on its Web site Nov. 4, showed a total $33.6 trillion of transactions on governments, companies and asset-backed securities worldwide, based on gross numbers. While designed to ease concerns about the amount of risk banks and investors amassed on borrowers from companies to homeowners, the study may have missed as much as 40 percent of the trades outstanding in the market, Ciccone said. (Oops, lol - Jesse)
The data are ``likely to underestimate the amount of net CDS exposure,'' he said in an interview.
Trading of credit derivatives soared 100-fold the past decade as banks, hedge funds, insurance companies and other investors used the contracts to protect against losses or speculate on debt they didn't own.
Banks worldwide have taken $693 billion in writedowns and losses on loans, CDOs and other investments since the start of 2007, according to data compiled by Bloomberg...
Commonly Traded Contracts
Because the DTCC registry captures only commonly traded contracts that can be confirmed over electronic systems, not every swap trade is in the company's report, spokeswoman Judy Inosanto said. Among those not included are credit-default swaps on CDOs, she said...
