Exploring Credit Default Swap (CDS) Market Data Using Modern Data Science Techniques

October 2nd, 2018 Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act addresses the gap in U.S. financial regulation of OTC swaps by providing a comprehensive framework for the regulation of the OTC swaps markets.  The objective of this blog is to describe how to rapidly and securely analyze credit default swap (“CDS”) transaction data using cloud computing and advanced machine learning (“ML”) techniques.  We obtained the CDS data from the Depository Trust and Clearing Corporation (“DTCC”).   A fundamental technology enabler for our customers is the B23 Data Platform which is a Cloud-based artificial intelligence (“AI”) engine to discover, transform, and synthesize data from a variety of sources to provide unique and predictive insights.   The B23 Data Platform is used by data-centric enterprises in many different industries including technology companies, government agencies, and financial institutions to securely use the Amazon Cloud to gain insight from very large data sets. Scope and Accomplishments of our efforts include: Created secure Machine Learning (“ML”) Analysis Cluster in representative Customer Private Cloud Ingested 5 years of CDS data in into the ML analytics cluster in 1 minute Identified anomalous CDS trading activities for complex market transactions Created established CDS compliance reporting metrics Identified CDS market characteristics at individual products and individual series levels     Identify Anomalous Transaction Activity or Faulty Reporting in Markets B23 investigated several transactions in the DTCC CDS data that looked peculiar.  Figure-2 shows a relatively small number of transactions composed of multiple line items in the data set that exhibited anomalous market activities. In the example above, “yellow” nodes are correction activities, and “red” nodes are cancellation activities. Walking through each set of transactions, the following activities are occurring: A single contract is created for a value of $52M (blue node labeled “new”) The $52M original CDS is corrected to a...