However, the development of the market for credit derivatives also embodies features affecting the balance of risks of the different actors in the financial landscape. To begin with, the following features related to market structure should be taken into account: 1. Concentration in CDS trading is very high and has probably further increased since July 2007 with the exit of several major players.
Such a high degree of concentration increases liquidity risk in the market. A recent report by the ECB 1 focusing on a sample of leading European banks active in the CDS market found that the top ten counterparts for each large surveyed bank accounted for between 62-72% of its CDS gross market value exposure. 2.