It is surprising how unsophisticated the swap market is as described in this Bloomberg article. It seems that, when it counts, no one really knows anything about pricing/trading this instrument. Not even the supposed experts. This section of the article is almost humorous. This is how literally 10’s of millions of guarantees are put into place:
For most investors, just getting default-swap prices is a chore. Unlike stock prices, which are readily available because they trade on a public exchange, swap prices are hard to find. Traders looking up prices on the Internet or on private trading systems see information that is hours or days old.
`Terribly Primitive’
Banks send hedge funds, insurance companies and other institutional investors e-mails throughout the day with bid and offer prices, Backshall says. For many investors, this system is a headache.
To find the price of a swap on Ford Motor Co. debt, for example, even sophisticated investors might have to search through all of their daily e-mails, he says.
“It’s terribly primitive,” Backshall says. “The only way you and I could get a level of prices is searching for Ford in our inbox. This is no joke.”
Posted: May 20th, 2008 under Americas, Gambling.
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