Trading in credit default swaps among Wall Street firms has dropped by 40-60% from pre-crisis levels as looming new derivatives regulations drive banks away from the rapidly growing segment, according to Bloomberg. CDS had led growth on Wall Street three years ago, with the leading four dealers of swaps reported lower profit and job cuts of up to 50% in groups that trade contracts. The Depository Trust & Clearing Corp. has reported a net decrease of 20% in the amount of credit swaps outstanding globally, in a segment that had accounted for as much as two-thirds of credit-market trading revenues at leading firms.
Committee on Capital Market Regulation director Hal Scott identified CDS as a major profit center for a lot of banks, and said the reduction in trading activity is part of a bigger picture of reduced financial activity due to uncertainty and regulatory reform. Contracts for CDS reached a peak gross national amount of $62 trillion in 2007, prompting Scotts group and other financial leaders to push for curbs on what were seen as unsafe risks posed by the market. Recent data from the Federal Reserve Bank of New York showed that the five leading dealers - JP Morgan, Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America - bout a net $430 of credit protection as of Sept. 30, which is 38% lower than in March 2009. Some analysts are speculating that banks may turn to futures contracts tied to exchange-traded benchmark credit indexes to make up for lost revenue.
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