The value of privately-traded derivatives rose 18 percent during the first half of the year to reach $708 trillion, according to data issued on November 15 by the Bank for International Settlements.
This increase will represent one of the four largest six-month gains recorded thus far, and happens as the over-the-counter derivatives market faces new regulations affecting how these risk management tools will be traded and cleared, according to The Wall Street Journal.
Data indicates that the notional value of credit default swaps (CDS) rose 8 percent during the period to $32.4 trillion, the media outlet reports. This is the first six-month period since 2H07, when the CDS market expanded 37 percent. CDS sold to cover risks on sovereign debt currently account for $2.9 trillion or 9 percent of the entire market for these risk-management tools.
The validity of CDS is being challenged as bondholders of Greece's debt have been asked to accept writedowns of up to 50 percent. If the offer is accepted, it will leave investors with a loss. Since the agreement is voluntary, the International Swaps and Derivatives Association would not consider the writedown a "credit event" or default, meaning that the bondholders will not be compensated for their loss by the CDS.
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