Merger forms credit derivatives giant

Two credit derivatives brokerages, CreditTrade and Creditex, have unveiled plans for a merger aimed at bolstering their positions in a burgeoning market.

The combined entity, to be named Creditex Group, is expected to broker credit contracts with a face value of $2,000bn (£1,100bn) this year in a market said by the International Swaps and Derivatives Association to total $17,000bn.

That market was worth just $500m in 1999, when the companies were founded to allow banks to trade in basic credit default swaps, which give investors an opportunity to buy and sell insurance against companies defaulting on debt.

Since then, the market has developed to encompass a rash of structured products and indices. Regulators are concerned that the pace of expansion is leaving banks struggling to keep up with their paperwork.

Paul Ellis, the founder and chief executive of CreditTrade, said yesterday that the tie-up had not been driven by potential cost savings but by the complementary strengths of each business. "The market is maturing," he said. "There are a number of small players out there and our clients would prefer to be serviced by fewer brokerages. It makes sense to concentrate liquidity, and will enable us to offer clients better service."

Mr Ellis, a former corporate financier with BZW, also said that his company's experience of voice-based trading would sit well with Creditex's expertise in electronic trading.

Credit derivatives traders welcomed the deal. One said: "It makes sense. Each [company] has its own access to the markets it caters for. There are too many brokers in the market and not enough business to go round."