McVey provides investment advice to or on behalf of KKR. Analogizing to the concept of insurable interest , critics say you should not be able to buy a CDS—insurance against default—when you do not own the bond.
Prior to the most common form of trading was through voice phone or a chat such as on a Bloomberg terminal. By migrating to screens the transparency of trading is greatly enhanced as market volumes per market-maker are available.
Market-makers can see the total amount of index trading daily and where they rank against their peer group. Although single name CDS volumes have been in sharp decline with the fall in activity of the structured credit desks, credit indices have remained popular as liquidity in the on-the-run indices remains good and the indices have moved to trading screens to trade more like equity indices.
Upon the declaration of a credit event by the ISDA Determinations Committee, the index will be reversioned, and trading in the new index version will commence. The initial issuance is version 1 e. In the event of a "Failure to Pay", or a "Bankruptcy" credit event, the protection seller makes a payment to the protection buyer on the credit event settlement date. The size of the payment is equal to that which would be paid if protection had been bought on a single name CDS with a notional scaled down by the constituent's weighting in the index.
In the event of a "Restructuring" credit event, the index is still reversioned. Instead of simply being settled, however, a single name CDS is spun off which can then undergo the usual single name optional triggering process. Historically, CDS indices have always been traded as a bilateral contracts directly between parties.
This brings with it the additional risk of counterparty default - where one party to a trade fails to meet its obligations under the trade. In this model, both parties to the trade face the CCP, and all members of the CCP pay into a fund to cover costs in the event that one member defaults. Clearnet  in There are different families of iTraxx credit default swap index broken down by geographical region consisting of Europe, Asia and a Sterling denominated index.
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