CDS contracts promise, for a fee, to pay the buyer for damages in the event of a “default” on a debt issue specified by the CDS. There is universal agreement among fixed income traders and market regulators that the CDS market needs reform.
By any standard, this market has failed to meet its original objective – to provide a routine hedge for risk manager’s credit exposure to specific debts. But these hedgers, insurance companies, investment houses, and pension funds – the buy-side, expect other market participants less affected by the ailing CDS market fix it.