Memorandum on Block Trades Analysis
11 Pages Posted: 24 Aug 2012
Date Written: January 13, 2011
Abstract
The objective of this analysis is to provide information to assist in the evaluation of how various block trade definitions might work in the context of Security-Based Swap (SBS) instruments. The analysis considers the effects of defining block trades based on a fixed notional SBS size as well as a notional size relative to the level of trading volume in the same instrument. Respectively, the criteria for these definitions are referred to as fixed and dynamic threshold requirements. Using historical SBS trade data, the analysis estimates the fraction of trades that would be classified as block trades under different block trade definitions, and shows how the effect of the block trade definitions discussed by the Commission in its proposing release would vary according to the underlying liquidity of an SBS instrument as measured by the average number of trades per day. The analysis in this memo is not intended to justify a particular block definition and is provided for illustrative purposes only.
The analysis is based on a sample of 411,042 new, risk transfer, dollar quoted, gold record transactions in both Corporate and Sovereign Single Name Credit Default Swaps (CDS)submitted to the Depository Trust & Clearing Corporation (DTCC) between August 1, 2009 and July 30, 2010, a sample of data identical to the one used in the Commission’s SBSR Proposing Release.
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