Enhanced Transparency on Single-Name Credit Default Swaps: A Comparison Between the United States and the European Union

Abstract

The goal of this article is to examine and compare the various actions that both US and EU legislators have taken—or want to take—to enhance the transparency of single-name credit default swaps (CDSs). Legislators on both sides of the Atlantic are of the view that enhanced transparency is beneficial but their focus is different. That is, the European Union focuses on enhancing pre- and post-trade transparency, whereas US legislators want to mitigate manufactured credit events by requesting disclosure of large positions. Both legislators are of the view that transparency could lead to enhanced market discipline and quality but where European Regulators focus on market participants knowing whether a transaction could take place at a certain price or has happened at certain conditions, US legislators believe that investors should have a more complete picture on creditors’ incentives in restructuring and whether there is a concentrated exposure to a limited number of counterparties. This paper discusses the regulatory differences and explains them based on the different market contexts in both continents.