We were curious about how market participants would react to our idea that requiring swaps to trade through exchanges would invite dreaded high frequency traders into the market.
Both on the panels and in conversation outside of the official discussions at the wmbaa.org conference, nearly everyone agrees: that's exactly what's going to happen.
The uncertainty involves what this will mean for the swaps markets and the credit markets. Clearing and exchange trading of CDS is simply too new to comprehensively predict.
"We're screwed. The algos will come in and break down the market," one trader told me. Admittedly, much of the profits from his trading comes from wide spreads that result from the OTC market.
Another trader had exactly the opposite view.
"This will ramp up business because we'll be offering truly competitive products," he said.
In short: everyone is guessing at what exchange trading will means for swaps. And no one really knows.
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