By Marc Chandler

NEW YORK (BBH FX Strategy) -- The Depository Trust and Clearing Corp. provides a central register for credit default swaps.

A recent report indicated that there are about $5 billion of outstanding Greek sovereign CDS. Greek debt in dollar terms is about $483 billion, meaning the CDS cover about 1% of Greece's sovereign debt.

The sovereign CDS market is much smaller than one might expect. Consider Italy. DTCC estimates its sovereign CDS market is about $25 billion. The outstanding debt is around $2.3 trillion.

The corporate credit default swap market appears more developed. It is less unusual to buy credit default swap protection on corporate bond exposure than it is on sovereign debt.

There have also been examples of voluntary "reprofiling" in the corporate sector that did not trigger a CDS event.

However, given the concerns already expressed by the rating agencies and the current sovereign rating outlook, creating a Greek restructuring on a voluntary basis looks particularly difficult.

Of the 85 billion euros of maturing Greek debt over the next three years, European officials acknowledge that the full amount cannot be expected to be voluntarily rolled over.

While recognizing that it is impossible to know a priori, European officials are hoping that the private sector "volunteers" to roll over about a one-third of the maturing debt. Given the ownership distribution of Greek debt (according to Bank for International Settlements and European Central Bank figures), it is not unreasonable.

However, in light the Merkel/Sarkozy joint position before the weekend, the market awaits the ECB acknowledgement. It can help its own cause and boost the chances of private sector participation if it agrees to roll over its maturing Greek exposures too.

ECB President Jean-Claude Trichet initially rejected such a proposal in his press conference earlier this month, but as we know the ECB has backed down before on what seemed like principled issues. Moreover, when the ECB began its controversial bond purchase program, it said it would hold the bonds until maturity. This is unlike the U.S. bond purchases, where no such commitment was made.

News out now that the European Stabilization Mechanism, the permanent replacement for the European Financial Stability Facility, will not have preferred creditor status is an important development insofar as it removes an obstacle to the (eventual) return of the distressed sovereigns to the capital markets.

-- Written by Marc Chandler of BBH Forex Strategy.

>To contact the staff member responsible for this article, click here: Ross Snel.

>To follow the writer on Twitter, go to http://twitter.com/marcmakingsense.

>To submit a news tip, send an email to: tips@thestreet.com.