It provides automated matching and confirmation services for over the counter (OTC) derivatives trades, including credit, equity, and interest rate derivatives.
The transactions, though technically derivatives trades known as prepaid swaps, perfectly replicated loans.
In effect, it bought insurance by making other derivatives trades.
Enron took advantage of that, using derivatives trades to hide loans from Wall Street banks in inscrutable parts of its balance sheet.
Most banks would face more losses if another financial firm failed from foreign currency trading or from loans than from derivatives trades, Mr. Brickell said.
The company applied for protection from creditors last month after losing at least $550 million in derivatives trades.
That miscalculation was reminiscent of the trouble with other sorts of derivatives trades that led to the near-collapse of Long-Term Capital Management in 1998.
Yet the risks associated with derivatives trades have never been tested in a sour economy; their consequences are unknown.
He worked not on trading strategy but on a problem the firm had: Salomon's management was disturbed that it was losing derivatives trades to rival firms.
What priority should we be looking at when we consider derivatives trades?
