Maybe the consolidation trend affecting stock exchanges is providing some inspiration among electronic marketplaces for over-the-counter financial products. On Tuesday, credit-derivativesinter-dealer brokersCreditex and CreditTrade announced that they will merge to form Creditex Group.
Creditex and CreditTrade both act as intermediaries between credit-derivatives dealers. There are also a number of electronic platforms that facilitate dealer-to-end user trading, including Thomson's
Credit derivatives might seem to be an obscure part of the financial markets, but the category has more than doubled in size in each of the past two years, to reach $17 trillion in outstanding notional value in 2005. Although the mechanics of some of these products are complex, they are essentially a form of insurance for bondholders.
Let's imagine you're a fund manager who owns the bonds of fictional auto-parts supplier Steering Wheels Inc., and you wish to protect yourself against the risk that the company will go bankrupt in the next five years. To do that, you could enter into a credit default swap (one type of credit derivative) with JPMorgan Chase
The Creditex/Credit Trade merger is a sign that the credit-derivatives industry is maturing. The new Creditex Group could in turn be an attractive acquisition target for a company such as marketplace-technology provider and former Motley Fool Hidden Gems pick eSpeed
- CME Does Well, Thinks Big
- Killer 'BOT Crushes Its Quarter
- Market Axess: The Archipelago of Bonds?
- Foolish Forecast: Timing eSpeed
- Another Japanese-Korean Truce
To find outstanding small-cap companies that still make the cut at Hidden Gems, treat yourself to a 30-dayfree trialof Tom Gardner's newsletter service.
JPMorgan Chase is an Income Investor recommendation.