"We either have netting agreements, or they foot, or they cancel each other out, or they're longs and shorts on the same instrument," he said, answering a question about how the firm manages so many contracts in a crisis. "The only way you can run a business like that is to have these systems work so they can aggregate stuff, so you can run the business on a macro basis, and also so you can get the details quickly if you need them. And that's all systems and technology."
Lindsey, the former SEC official who's now president of New York-based Callcott Group LLC, which consults on markets and market operations, said few firms have systems that can portray their real-time exposure to trading partners.
"That's very difficult for any firm to have a good handle on all of that -- you know large positions and you know what certain positions are, but to be able to say I've adequately aggregated all of my long exposure and all of my short exposure to a specific counterparty may be very difficult," Lindsey said. "I don't know of a firm where it's not pulled together by a phone call, where somebody says, 'OK, we need to know our exposure to X,' and a lot of people stop
their day jobs and try to find an answer."
Eoin Treacy's view The major dealers in CDS contracts will
point to the successful resolution of trades despite massive interconnectivity
in the aftermath of the Lehman bankruptcy. What they will be less inclined to
talk about is the effect on the wider market of these highly opaque dealings.
They will claim CDS contracts are individual to the counterparties and unsuitable
to an exchange traded format. However, this is a hollow argument. There is no
reason a central clearing house cannot be set up to sort through counterparty
payments. This would help to introduce a more transparent working environment,
bolster confidence and increase investor ability to effectively price risk.
JP Morgan bounced impressively from its 2009 low and ranged mostly between $37 and $48 until August. It broke downward and encountered resistance in the region of the lower side of the range and the 200-day MA four weeks ago. A sustained move above $37 will be required to check current scope for an additional test of underlying trading. Citigroup and Morgan Stanley did not bounce as powerfully as JP Morgan in 2009 but have been ranging for much of the last two years. They also broke downwards in August and encountered resistance in the region of the 200-day MA four weeks ago.
Goldman Sachs ranged with a downward bias from late 2009 and broke sharply lower in August. It posted its largest rally in more than year in October but needs to find support above the low near $84 to question the broad consistency of the downtrend. Bank of America continues to trend lower and a sustained move above at least $7.50 would be required to question the progression of lower rally highs.
Of the major US banks, Wells Fargo remains a clear outperformer. It continues to range below its pre-crisis peak and a sustained move below $23 would be required to suggest a return to medium-term supply dominance.