Here are near future for us-financial doom byBloomberg

By Kabir Chibber

Bloomberg News Service

Thursday, November 22, 2007

[link to http://www.bloomberg.com <http://www.bloomberg.com/apps/news?p...

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The market for derivatives grew at the fastest pace in at least nine

years to $516 trillion in the first half of 2007, the Bank for

International Settlements said.

Credit-default swaps, contracts designed to protect investors against

default and used to speculate on credit quality, led the increase,

expanding 49 percent to cover a notional $43 trillion of debt in the

six months ended June 30, the BIS said in a report published late

yesterday.

Derivatives of debt, currencies, commodities, stocks and interest

rates rose 25 percent from the previous six months, the biggest jump

since the Basel, Switzerland-based bank began compiling the data.

Investors have been turning to credit derivatives as a way to

speculate on a growing risk of defaults amid record U.S. mortgage

foreclosures.

"The pace of increase in the credit segment outstripped the rises in

other risk categories," Christian Upper, a BIS analyst in Basel, wrote

in the report. Credit-default swaps are "the dominant instrument,"

accounting for 88 percent of credit derivatives, the BIS said.

The money at risk through credit-default swaps increased 145 percent

from last year to $721 billion, the report said. The amount at stake

in the entire derivatives market is $11.1 trillion, according to the

BIS, which was formed in 1930 to monitor financial markets and

regulate banks.

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. The report is based on

contracts traded outside of exchanges in over-the- counter market.

Increased trading pushed ICAP Plc to a record this week as the world's

largest broker of transactions between banks reported a 34 percent

increase in net income to 80.1 million pounds ($164.4 million). The

London-based company, which profits when prices fluctuate, handled a

record amount of transactions as financial institutions bet on or

hedged against losses linked to home loans.

The Markit CDX North American Index of credit-default swaps on 125

investment-grade rated companies has almost tripled since February to

90 basis points from 33.

Buyers of credit-default swaps receive the face value of underlying

debt in the event of nonpayment, in return for the defaulted

securities or cash equivalent. A basis point increase in the cost of a

contract covering $10 million of debt is equivalent to $1,000 a year.

Interest-rate derivatives remained the largest part of the market,

gaining 19 percent to $347 trillion outstanding by June, the report

said. Single currency interest-rate swaps made up 79 percent of the

market.

Foreign exchange derivatives grew by 21 percent to $49 trillion as the

dollar declined 2.5 percent against the euro in the first half.

Contracts on the Swiss franc increased 32 percent, trailed by 27

percent increases in both the U.K. pound and the Canadian dollar

contracts, the BIS said.

Equity market derivatives grew by 23 percent in the first half to $9

trillion. Growth was highest in Latin America equity derivatives at 43

percent and lowest in Japan at 6 percent. Japan's Nikkei 225 index

rose 4.8 percent during the period while the MSCI Latin America index

increased 25 percent.

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