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Category: We live in Financial TImes

Equity tranches in Dallas

Equity tranches in Dallas

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Northeast Tarrant-20140516-00074

I was in Dallas to cover the annual shareholders meeting of Goldman Sachs. I thought I would take a detour from the plush surroundings of Goldman’s offices to a rather different locale; the site of one of the first – and largest – CMBS 2.0 loans to have defaulted. My cab driver eyed me nervously when I said I wanted to stop by this place in North Richland Hills (he later confessed that he thought I was planning to strike a drug deal in the parking lot).

Here’s the story:

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Shadow banking, a compendium

Shadow banking, a compendium

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Sometimes, looking at your past work reveals not only the progression of a real-world trend but also a subtle shift in the narrative of the topic under discussion.

It used to be that the ‘shadow banking system’ encompassed a relatively select group of non-bank financial intermediaries – broker-dealers, the repo market, money market funds, SIVs, etc. That group grew enormously in the years before the financial crisis, but has since collapsed pretty significantly.

Nowadays the definition of shadow banks appears to have expanded to include a host of non-bank financiers like direct lenders, asset managers, hedge funds etc.

Here’s a selection of some shadow banking pieces that illustrates the trend.

 

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Derivatives of derivatives

Derivatives of derivatives

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While the outstanding amount of CDS has been shrinking, there is one pocket of the derivatives world that appears is growing pretty substantially – options on CDS indices. How much have these CDS index swaptions grown, you ask?

From a 2011 FT Alphaville post:

…. Citigroup revealed in “a brief CDX options primer” that the market for these financial instruments had surpassed an average $5bn in trading volume per week. And that’s just for options based on Markit’s CDX index — not even those on other credit indices …

Fast forward almost three years, and the latest estimate for weekly volume is, erm, somewhat higher.

… An average $60bn of CDS index options currently exchange hands per week … according to estimates from Citigroup based on data from the Depository Trust & Clearing Corporation (DTCC)….

CDS options market multiplies alongside questions (2011)
‘Swaptions’ trade leaps over regulatory hurdles (2014)