The credit derivative market, which has ballooned to over $62 trillion to dwarf the underlying debt market, has yet to experience the default of significant issuer since its rapid growth. Corporate defaults, however, are on the uptick and expected to accelerate, and the number of companies with credit default swaps trading at distressed levels are also on the rise indicating the market may soon be tested. Some lags in processing credit derivative trades have made regulators and market participants nervous there could be confusion if a large borrower, or even worse a counterparty, failed. More
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