This is partly because the titans can afford the best trading systems, but also because a bank with a large share of trading has the liquidity that further increases its attractiveness as a trading counterparty.
Aron was Semgroup's biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.
But falling short of real-time price displays, the system would be less effective than exchange trading in stopping a counterparty in a trade from defaulting--or a fire from quickly spreading.
According to a 2002 study by two economists at Indiana University, enforcing insider-trading laws reduced the cost of equity in the countries they looked at because investors did not demand a premium for the risk of trading with a crooked counterparty.
Still, taking into account estimates of trading volumes and margin payments, it is conceivable that an individual hedge fund, if it had no regard for counterparty risk, could have dominated trading of an individual bank's CDS on any given day.
He also said the Fed is encouraging the development of a central counterparty clearing system for trading in credit default swaps and working on strengthening the resiliency of the short-term secured funding markets that left Bear in the lurch in March.
Lehman Brothers sank 10% in trading Monday after a report that it had been shut out of trading some energy contracts by Platts, a pricing service, on counterparty concerns.
We take a large trading partner and look at all our positions and ask what happens if the counterparty goes bankrupt, what do we have to do to close down those positions?
The panel repeatedly grilled Geithner about the decision to pay the AIG counterparties at 100 cents on the dollar, a far better deal than they would normally get in the collapse of a trading partner, and the additional decision to try to keep the payments and counterparty names from being publicly disclosed.
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