The SEC staff on Thursday made available to the public an analysis of market data related to credit default swap ("CDS") transactions.  CDSs are, in effect, insurance coverage for a default by a company on its loans. The analysis, conducted by the staff of the SEC’s Division of Risk, Strategy, and Financial Innovation, is available for review and comment as part of the comment file for rules the SEC proposed, jointly with the Commodity Futures Trading Commission (CFTC). The study further defines the terms “swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant," and "eligible contract participant."  The SEC and CFTC jointly proposed those rules in December 2010 as one part of the implementation of Title VII of the Dodd-Frank Act. The SEC staff believes that the analysis of market data has the potential to be informative for evaluating certain final rules under Title VII, including rules that further define "major security-based swap participant" and "security-based swap dealer," and rules implementing the statutory de minimis exception to the latter definition. Analyses of this type particularly may supplement other information considered in connection with those final rules, and the SEC staff is making this analysis available to allow the public to consider this supplemental information. The SEC staff expects that the Commission will consider the adoption of rules defining these terms in the next several weeks. For further details:  [SEC Announcement - PR 12-47, 3/15/12] and the [SEC Staff Analysis Report].  After the Jump, read the staff's memo that accompanies its report on CDS market data analysis, to get an idea as to its scope and usefulness. MEMORANDUM To:         File From:    Division of Risk, Strategy, and Financial Innovation1 Re:         Information regarding activities and positions of participants in the single- name credit default swap market Date:     3/15/2012 Introduction The Division of Risk, Strategy, and Financial Innovation has completed an analysis of single-name credit default swap transaction and position activity.  The first analysis is based on a sample of all new, risk transfer, dollar-adjusted, gold record transactions in both corporate and sovereign single-name credit default swaps (CDS) submitted to the Depository Trust and Clearing Corporation’s Trade Information Warehouse (DTCC- TIW) between January 1, 2011 and December 31, 2011 (the sample period).2   The second analysis is based on monthly position data in single-name CDS over the same sample period and provided by DTCC-TIW. The analysis provides information that characterizes the level of trading activity and positions in the credit default swap market.  It is intended to assist the Commission in the development of final rules that further define the terms “security-based swap dealer” and “major security-based swap participant” in connection with the implementation of the Dodd-Frank Act.3   In part, this information should help evaluate the impact of alternative approaches (1) to implementing the de minimis exception to the “security-based swap dealer” definition by quantifying, under certain assumptions, the number of persons who may be required to register as “security-based swap dealers” or “major security-based swap participants,” and (2) to evaluating the security-based swap activities and positions of such persons. 4 The memo is organized as follows.  Section I first discusses potential criteria which, when analyzed in combination with the single-name CDS dataset available from DTCC- TIW, may be indicative of dealer activity. Next, the section outlines the methodological approach. An analysis of each criterion based on 12-month aggregate gross notional dollar value of single-name CDS transactions and illustrated by charts and tables follows, as well as an analysis of the effect of combining multiple criteria.  Section I concludes with an analysis of transaction activity between counterparties and special entities. Section II provides an analysis of aggregate gross notional positions that may be relevant to predicting the number of entities that need to determine whether they qualify as major security-based swap participants.  Finally, an appendix repeats the criteria analysis from Sections I and 2 for index CDS. ------------------------------------------------------------------------------------------ FOOTNOTES 1 This is a memo by the Staff of the Division of Risk, Strategy and Financial Innovation of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis,  findings, or conclusions contained herein. 2 Non-dollar denominated transactions are adjusted to U.S. dollars at prevailing exchanges rates. 3 See Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” Exchange Act Release No.  63452, 75 FR 80174 (Dec. 21, 2010). 4 Although rules requiring counterparties to report security-based swap (SBS) transactions to a Swap Data Repository in accordance the Dodd Frank Act have been proposed, they have not been adopted. As a result, the Commission does not yet have ready access to all SBS market transactions. Nevertheless, because the industry through DTCC began to provide infrastructure to the CDS market (the most developed componentof the SBS market) several years ago, we have access to, and are able to analyze, a large fraction of the SBS market. Our analysis may understate activity levels in the SBS market because it does not include other types of SBS. In addition, there is a second source of understatement because our analysis is based only on single-name CDS transactions as opposed to all CDS transactions that may be SBS.