As a result of moves by regulators to move Credit Default Swaps, it looks like the big banks are looking at a revenue stream drying up:

Goldman Sachs Group Inc. and JPMorgan Chase & Co. will find it tough to reproduce last year’s record trading revenue as the difference between bid and offer prices in credit markets narrows to the tightest in almost 18 months.

The CHART OF THE DAY shows how the gap between prices at which traders offer to buy and sell credit-default swaps on North American companies has shrunk to 6.1 basis points, from as high as 20.4 in October 2008 and 16.3 in March. Historically wide spreads on everything from derivatives to bonds, representing fees earned per trade, helped fuel the recovery in bank earnings.

Basically, this gap is the difference in buying and selling prices, and it is the investment banks that profit from large spreads.

It’s why they have been campaigning to keep financial instruments off of public markets. When buy and sell prices are public knowledge, the spreads between them shrink, and so do the banks profit margins.

That’s why they want carve-outs from requirements for public trades: It robs them of the ability to overcharge for their services.