DoJ's CDS Investigation: A Guess

There has been a lot of speculation about what the Department of Justice is focusing on in its investigation of credit derivatives after it was disclosed that Markit, and the dealers that have an ownership stake in Markit, have all been contacted by the DoJ's Antitrust Division. I obviously don't know (at this point, only the DoJ lawyers know), but I'll throw a guess out there. I'm guessing the DoJ is investigating the possibility that traders were colluding on quotes they gave each other for purposes of calculating their "Exposure" under their Credit Support Annexes (CSAs), which would have allowed them to demand more collateral than they should have from counterparties (such as AIG). If that's the case, then the DoJ is probably looking to compare the dealers' "Exposure" calculations, and the quotes they were based on, with the quotes they were submitting to Markit. I'll explain why these calculations are important in the next post, in case you have no idea what I'm talking about.