Credit derivative

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Credit derivative

Financial instruments in which the payoffs depend on the credit risk of companies or government entities, other than the counterparties to the credit derivative transaction itself.

Credit Derivative

Any derivative that allows an investor to hedge its credit risk. For example, if a brokerage is concerned that a client may be unable to pay a margin call, it may transfer this risk to another investor in exchange for paying a fee. Regular derivatives, like forward contracts and options, may be used as credit derivatives, depending on the credit risk of an investor's other positions.
References in periodicals archive ?
On June 24th this year, CFTC Chairman Giancarlo, Securities and Exchange Commission Chairman Jay Clayton, and the U.K.s Financial Conduct Authority Chief Executive Andrew Bailey issued a joint statement regarding their concerns in credit derivatives markets.
Cyrus, which had sold credit derivatives on SRAC's debt, then took steps to reduce the size of its possible payout.
A counterparty involved in some types of credit derivatives arrangements makes a payment when certain events occur, Quarles said.
Keywords: Banking Sector; Credit Derivatives; Credit Default Swaps; Bank Risk; Z-Score; Financial Credit Crisis.
"To launch these exchange-traded credit derivatives, the exchanges needed licenses for data and index benchmarks.
How does Goldman Sachs's $1.96 trillion in maximum notional payouts for credit derivatives relate to the $875 billion in gross fair values of all derivative liabilities?
It said that Deutsche Boerse and the Chicago Mercantile Exchange attempted to break into the credit derivatives business between 2006 and 2009, but when they tried to obtain the necessary licences they were offered only "over-thecounter" trading rather than exchange trading.
It said Deutsche Boerse and the Chicago Mercantile Exchange attempted to break into the credit derivatives business between 2006 and 2009, but when they tried to obtain the necessary licences they were offered only "over-the-counter" trading rather than exchange trading.
Financial data company Markit, the International Swaps and Derivatives Association (ISDA) and 13 banks were charged with blocking two exchanges from entering the credit derivatives market in the last decade in breach of EU antitrust rules.
Or how about the report by Jonathan Well of Bloomberg, which addresses the question "How did JPMorgan's chief investment office, which manages deposits that the bank hasn't lent, go from being a conservatively run risk manager to a profit center speculating on higher-yielding assets such as credit derivatives?" It was a transformation that recently caused the bank to lose $6 billion.
Deutsche Bank said in a statement that the report in the Financial Times was "wholly unfounded." According to the FT, three former Deutsche Bank employees told the US regulators, the SEC, that the bank had used improper accounting to misrepresent as much as $12 billion (8.4 billion euros) in losses on credit derivatives during the financial crisis between 2007 and 2009.
The bank said it might generate another $700 million to $1.7 billion of losses from the credit derivatives trades.