The world has been buzzing about the looming launch of a central clearinghouse for credit derivatives, something many see as a crucial step toward imposing order on the market. We have voiced our firm support for such a move, but we also predict that the path to such a clearinghouse may not be easily traversed. We'll likely end up with competing systems--which wouldn't be a disaster or anything--and some major delays.   

Fortunately, there is reason to believe that the credit default swap market may be a bit less, well, scary than many people thought. This conclusion stems from new data from the Depository Trust & Clearing Corporation's Trade Information Warehouse. Barclays Capital and CreditSights have been among those singing the praises of the data, which hopefully will be released on an on-going basis.  

For one thing, a new metric has been created: Net notional values, which reflect how much money can change hands when a company goes belly up. The gross notional values tend to be scary but do not reflect offsets and hedges within a counterparty family (sometimes, it really does seem like we're talking about bookies). The value of net notional values tend to be much, much lower than the gross notional values, hence Barclay's headline: "DTCC data show corporate CDS fears overblown."  

That said, there are some institutions with some pretty large exposures. Deutsche Bank, GE Capital, Morgan Stanley, Merrill Lynch, Goldman Sachs, Countrywide Home Loans and Citigroup top the list.  All in all, this should not be used to dampen the rush toward automated solutions, but it does provide some good perspective on the market. - Jim