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Overview of the Credit Derivatives Market: Explosive Growth, Trends in Automation, What are the Missing Links?

Overview of the Credit Derivatives Market: Explosive Growth, Trends in Automation, What are the Missing Links?

The confluence of market and regulatory pressures coupled with the drive for greater operational efficiency and the desire to cut transaction costs, from the current US$250-US$900 per trade, are coming to bear on the credit derivatives market.
By Brad Bailey

Boston, MA, June 16, 2006 – According to recent research by Aite Group, LLC, the explosive growth in the credit derivatives market has overwhelmed the ability of traditional operations to handle increased trading volumes. With over US$17 trillion in notional value outstanding in the credit derivatives market, and the Federal Reserve on top of dealing banks to eliminate processing issues, the market is ripe for a transformation from a voice, paper, FAX model, to an electronic trading and automated processing/STP paradigm. This report provides the framework for understanding this complicated OTC derivative market.

In this report, Aite Group provides insight into how the credit derivatives market work, primary players, the structure and trading of credit default swaps and the transition to a more automated market structure.

According to Brad Bailey, senior analyst at Aite Group and author of the report, "Trading in credit derivatives has grown exponentially over the last year and that growth has put unusual stress on the middle and back office. As a result, market participants are taking an increased interest in electronic trading to alleviate these pressures and streamline the end-to-end trade processing of credit derivative products, specifically CDSs and indices."

This is a 43-page Impact Report. Clients of Aite Group's Institutional Securities service can download the report.