IOSCO Evaluates Transparency and Liquidity in the Single-Name CDS Market

The International Organization of Securities Commissions ("IOSCO") found no evidence of causation between the movements in single-name credit default swap ("CDS") prices and the drop in bank shares during the March 2023 banking sector turmoil. IOSCO said the activity in the CDS market was a reaction to, not a driver of, the market stress.

In a newly published report, updating a 2015 study, IOSCO assessed the transparency, liquidity, and behavior of the global CDS market following the March 2023 banking sector turmoil. IOSCO encouraged member jurisdictions to take steps toward enhancing post-trade transparency in their single-name CDS markets. IOSCO recommended that each jurisdiction should proceed deliberatively, assessing the unique characteristics of its market to ensure such efforts do not have a substantial negative effect on market risk or activity. IOSCO also reminded jurisdictions of their ability to use existing securities law enforcement regimes to address any potential suspicious activity.

In the report, IOSCO found:

1. that the global single-name CDS market is highly illiquid, with spreads sensitive to limited trading activity. 
2. that post-trade transparency for single-name CDS varies widely across jurisdictions. In the United States, near real-time public trade reporting introduced in 2022 showed no negative impact on liquidity. In contrast, the European Union and United Kingdom defer transaction disclosures by two days (T+2) due to market illiquidity. IOSCO noted that other jurisdictions—including Australia, Canada, Hong Kong, Japan, Singapore, and Switzerland—generally publish only aggregated data instead of transaction-level details.
3. that the failures of several U.S. regional banks and the Credit Suisse crisis triggered a surge in single-name CDS trading, with notional volumes exceeding $1 trillion in Q1 2023—a five-year high. IOSCO explained that this reflected widespread hedging amid uncertainty and contributed to sharp increases in CDS spreads for major banks. IOSCO found no evidence linking CDS price movements to bank equity declines, concluding that CDS activity responded to, rather than caused, market stress.
4. that greater post-trade transparency could reduce information asymmetries, enhance price discovery, and improve market efficiency. However, the organization cautioned that expanded disclosure may raise hedging costs, increase volatility, or expose trading strategies. IOSCO suggested mitigation measures such as delayed reporting or volume caps for large trades to balance transparency with liquidity preservation.