As the financial crisis unfolded in 2008, many believed it would herald wholesale change at investment banks. As the dust settles, however, it is in trading and clearing that some of the most seismic shifts - and the biggest business opportunities - have taken place.
The near collapse of Bear Stearns and the bankruptcy of Lehman Brothers highlighted the counterparty risks associated with credit default swaps (CDS) - the contracts that offer insurance against banks, companies and governments defaulting on debt. By the time it became clear that US insurer AIG had been brought to its knees by selling such insurance on $446bn of bonds, the US regulators had had enough. It was time to bring these opaque over-the-counter (OTC) derivatives into the light, and to force as many transactions as possible into central clearing. Almost overnight, a huge business was created and market participants rushed to create the necessary infrastructure.
