New frontiers in credit derivatives

Abstract

Credit derivatives are one of the fastest growing sectors of the global financial markets. This market expansion has been accompanied by significant product innovation. This paper discusses the latest generation of credit derivative products, the class of products known as ‘synthetic securitisations’. The legal structure of a synthetic securitisation deal and the emerging classes of managed arbitrage synthetics and synthetic squares are examined. The paper also considers the controversial use of transformers by insurers and the recurring concern that common law courts may characterise credit derivatives as insurance products.