More Wall Street Turmoil Tomorrow- Major CDS Auction

Tomorrow an opaque financial process will unfold in which $400 billion in "credit default swaps" will make default payouts related to bonds sold by Lehman Brothers. Despite the fact that the auction is the biggest financial thing scheduled to happen in the world tomorrow, there is almost nothing about it in Google News. A search of Bloomberg actually doesn't turn up anything. The CDS auction is apparently a closed process whose results will appear after it is over. Looking around for more stuff on this multitrillion-dollar financial market is crazy. The market index for these things, LCDX, was actually first introduced on May 22, 2007, and Google has only 16,700 hits on the search term "LCDX". For comparison, Google shows over twice that many hits for "Bogotol", a town of about 24,000 people located in western Siberia about 2,000 miles east of Moscow. You know, it would be a good idea if massive financial processes like this actually could be better documented.

This article at least tells us when the process is going to take place:

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0841811720081008

FACTBOX-Lehman CDS settlement auction timeline

Wed Oct 8, 2008 4:16pm EDT

NEW YORK, Oct 8 (Reuters) - The value of credit default swaps backed by defaulted Lehman Brothers bonds will be set on Friday, with protection sellers expected to face massive losses of around 90 percent of the insurance they sold.

Bondholders have seen their investments virtually wiped out by Lehman's bankruptcy filing on September 15, with most of the defaulted bonds which will be used to settle the swaps trading in the area of 12-to-13 cents on the dollar, according to MarketAxess.

The auction to settle credit default swaps on this debt will likely be the second-largest settlement of the contracts in the $55 trillion market, following an auction to settle swaps on Fannie Mae and Freddie Mae on Monday.

Twenty-two dealers will participate in the auctions, which will determine how much protection sellers will recover after paying out the insurance. The timeline for the auctions follows, according to JPMorgan.

9:45 a.m.-10 a.m. Auction participants will submit bids and offers for the debt backing the credit default swaps, which will be used to determine the initial recovery rate of the swaps.

10:30 a.m. Auction administrators Creditex and Markit will publish the initial recovery price and the open interest for the contracts will be published. The open interest reflects the amount of bids and offers that have been made, and will show if there are more buyers than sellers, or vice versa.

12:45 p.m. -1 p.m. Participating dealers will submit limit orders for the debt on behalf of themselves and their clients to fill the open interest

2 p.m. The final price of the auction will be published. (Reporting by Karen Brettell; Editing by Chizu Nomiyama)