Data on the credit risk swap market is available from three main sources. Annual and semi-annual data have been available from the International Swaps and Derivatives Association (ISDA) since 2001 and from the Bank for International Settlements (BIS) since 2004.  The Depository Trust & Clearing Corporation (DTCC) provides weekly data through its global Trade Information Warehouse (TIW), but the publicly available information is only one year old.  The figures given by each source do not always match, as each supplier uses different sampling methods.  Daily, intraday and real-time data are available from S&P Capital IQ through the acquisition of Credit Market Analysis in 2012.  The CDS market was originally created to allow banks to transfer credit exposures and free up regulatory capital. Today, CDS are the engine of the credit derivatives market. The growth of the CDS market is largely due to the flexibility of CDS as an active portfolio management tool with the ability to adjust corporate loan exposure. Today, the CDS market represents more than $10 trillion in gross nominal exposures1. A new default swap type is the Credit Default Swap (LCDS) “Loan Only”.
Conceptually, this is a standard CDS, but unlike “vanilla” CDS, the underlying protection is sold on syndicated secured loans of the reference unit rather than on the broader category of “bonds or loans”. Effective May 22, 2007, the standard LCDS settlement method for the most commonly traded LCDS form, which governs North American single-name, index transactions, has been replaced by auction settlement, not physical settlement. The auction method is essentially the same as that used in ISDA`s various cash settlement auction protocols, but does not require parties to take additional steps (i.e., adherence to a protocol) after a credit event to select the cash settlement. On October 23, 2007, the first LCDS auction for Movie Gallery was held.  It is important to note that credit risk is not eliminated – it has been transferred to the seller of CDS. The risk is that the seller of CDS is in default while the borrower is in default. This was one of the main causes of the 2008 credit crunch: CDS sellers such as Lehman Brothers, Bear Stearns and AIG failed to meet their CDS obligations. For example, if Lender A has granted a loan to Borrower B with an average credit rating, Lender A may increase the quality of the loan by purchasing a CDS from a seller with a better credit rating and financial support than Borrower B. The risk has not disappeared, but it has been reduced by the CEMD. Finally, standard CDS contracts establish delivery obligation characteristics that limit the range of obligations that a protection buyer can meet in the event of a credit event.
Commercial agreements relating to the characteristics of the delivery obligation vary according to the markets and the types of CDS contracts. Typical restrictions include that the deliverable debt is a bond or loan, has a maximum maturity of 30 years, is not subordinated, is not subject to any transfer restrictions (with the exception of Rule 144A), corresponds to a standard currency, and is not subject to some urgency before maturity. When entering into a CDS, buyers and sellers of credit hedging assume counterparty risk: The performance of credit risk swaps, such as corporate bonds, is closely linked to changes in credit spreads. . . .