Credit Derivatives - Credit - Markets - ICAP.com

Credit Derivatives

Credit derivatives allow the credit component of an asset, such as a bond or loan, to be traded independently of its other attributes. Investors using the market can hedge themselves against default risk or credit events without selling the underlying asset or assets. Sellers can gain exposure to credit risk without participating in the cash market and funding the asset(s).

Typically, credit derivatives are structured as default swaps, but there are a variety of different structures. The investor pays an annual premium to the protection seller. The seller, in turn, compensates the investor in the event of a defined credit event.

ICAP launched e-trading for credit derivatives at the end of 2004 with a focus on single credits as well as indices. Upgraded functionality has recently been added to the system and the 17 banks which have the latest version deployed have reacted very positively. We also plan to offer single name credit derivatives together with corporate bonds on the same screens for transaction.

ICAP was one of the first brokers in the credit derivative market. It has three teams in London, New York and Hong Kong. This product is an important part of ICAP’s fixed income coverage.

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