Next week, an EFT for credit derivatives


Eurex Has Confidence
In Credit Derivatives

By Paul J. Davies
Financial Times, London
Thursday, March 22, 2007

Eurex is confident that the world's first exchange-traded credit derivatives contract will take off when it launches on March 27 in spite of the reticence of many investment banks about becoming involved with the product.

The German-based derivatives exchange, partly owned by Deutsche Börse, said on Thursday that the product had huge potential and would open the world of credit derivatives to a broader range of participants, many of whom are restricted from trading in the established, private, "over-the-counter" markets.

The explosive growth of credit derivatives in the past few years has left exchanges around the world keen to gain a slice of this business. The Chicago Mercantile Exchange and the Chicago Board Options Exchange are also planning credit derivatives launches.

However, investment banks have seen a strong and highly profitable market develop off exchanges and only SG CIB, the French investment bank, has so far come out publicly in support of an exchange-traded product. Many banks at best say they will wait and see whether it is something their clients want to trade before getting involved.

Peter Reitz, a member of the Eurex executive board, said: "The long-term potential is huge for this product, although how long it will take to evolve, we are not so sure."

Eurex said that while several banks were still in a testing process for the futures, it would have price providers on the exchange on its launch.

However, some banks saying it will only increase efficiency for those who wanted to trade in smaller ticket sizes than the E10 million minimum used in OTC markets.

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