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Capital Markets

SF Market round-up: Fitch ups the ante in credit derivatives

Fitch Ratings has launched a wholly owned subsidiary devoted to the credit derivatives sector.

DerivativeFitch is described as the first specialist rating agency focused on the “unique” risks of this market. “We are redefining what a full service rating agency does,” says Kim Slawek, group managing director at Fitch. The agency is determined to stake out a prime position in the credit derivatives market, a strategy that has been clear since the launch of its RAP CD product last April (see Valuation models: The value of number crunching, Euromoney May 2006). “We wanted to launch DerivativeFitch once we had a suite of established products focused on the needs of credit derivative investors,” explains Slawek. These include stability scores, which are a forward-looking measure of potential volatility and the ability to offer a mark-to-model opinion.

The driver behind Fitch’s thinking on credit derivatives is the need to put credit risk and market risk together in a single metric, creating a new rating scale. But this process is still at the development stage and the agency is in discussions with the market as to whether this is the right way to go.

It is unlikely that the other agencies, at least in the short term, will follow suit. “Moody’s is looking at derivatives transactions every day,” says a spokesman at the agency.

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