Derivatives market declines for the first time ever

 

 

 

 

 

 

 

http://www.bloomberg.com/apps/news?pid=20601102&sid=aH8SyaUL.9H0&refer=uk

May 19 (Bloomberg) — The derivatives market shrank for the first time in the second half of 2008 as the global financial crisis curbed trading, the Bank for International Settlements said in a report.

The amount of outstanding contracts linked to bonds, currencies, commodities, stocks and interest rates fell 13.4 percent to $592 trillion, the Basel, Switzerland-based bank said yesterday. That’s the first decline in 10 years of compiling the data. The amount of credit-default swaps protecting investors against losses on bonds and loans fell 27 percent to cover a notional $41.9 trillion of debt.

Investors shunned derivatives as demand for risky assets withered after Lehman Brothers Holdings Inc.’s failure in September. Trading volume may decline further after more than 2,000 banks, hedge funds and asset mangers that trade credit- default swaps agreed to a “Big Bang Protocol” last month that will make it easier to move the contracts to a clearinghouse and eliminate overlapping trades.

The Obama administration announced proposals last week to expand regulation of derivatives, which have been blamed for contributing to the failures of Lehman Brothers and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in losses and writedowns by financial companies.

If changes are not made “we will be haunted by our failure for years to come,” Brooksley Born, the former U.S. official who lost the fight to regulate derivatives a decade ago, said yesterday as she accepted a Profiles in Courage award from the John F. Kennedy Library.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or the weather. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

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the first time this has ever happened..but i thought we were in a recovery now..so why is this happening?..the big boys are getting out..there is much more to fall before this is over

401

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~ by seeker401 on May 21, 2009.