Regulation 2024/791, known as the MiFIR Review, was published on 8 March 2024 and introduces transparency requirements for single-name credit default swaps (CDSs). These rules apply only if the CDSs reference global systemically important banks (G-SIBs) or an index of such banks. While the revised rules aim to bring more transparency to this market segment, they are limited in scope given that CDSs referencing G-SIBs represent merely 8.36% of the total notional amount traded and 5.68% of transactions. This means a substantial portion of the single-name CDS market remains outside the purview of the new regulations. For an in-depth discussion, see European Law Blog.
Single-name CDSs are mostly traded over-the-counter, making pre-trade and post-trade information limited and thus contributing to market opacity. The lack of real-time data can exacerbate volatility, as evidenced during the financial difficulties of several US banks in March 2023, which affected EU banks and saw a significant increase in CDS trading volumes and prices. For example, Deutsche Bank experienced over 270 CDS transactions worth $1.1 billion following UBS’s takeover of Credit Suisse. Such events highlight the market’s vulnerability to limited transparency.
The MiFIR Review mandates that market operators and investment firms make public the bid and offer prices and trading interest depths for single-name CDSs related to G-SIBs, but only when these are centrally cleared. However, there’s no obligatory clearing for such CDSs under the European Market Infrastructure Regulation (EMIR), meaning non-cleared CDS data remains opaque. Additionally, the MiFIR Review’s post-trade transparency stipulates as close to real-time disclosure of price, volume, and transaction time for specific derivatives, although deferrals based on liquidity and transaction size are possible.
Despite these steps, the MiFIR Review’s transparency requirements are not far-reaching. Many single-name CDSs, especially those not referencing G-SIBs or not centrally cleared, will remain outside the scope. This measured approach aims to balance transparency with market liquidity, avoiding unintended increases in trading costs or volatility. For further insights, refer to Randy Priem’s analysis.