Investors can now construct a diverse portfolio at much lower transaction costs compared with purchasing a portfolio of corporate bonds or even single-name CDS. As derivatives, indexes can readily be used either to  5  See Randall S. Kroszner (1999), “Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearinghouses and Recent Over-the-Counter Innovations,” Journal of Money, Credit, and Banking, vol.
31 (August, part 2), pp. 596-618. 6  Calculated from NASD, TRACE Corporate Bond Data. 7  Calculated from NASD, TRACE Corporate Bond Data. 8  Reuters Loan Pricing Corporation, www.loanpricing.com/analytics/pricing_service_volume1.htm . BIS Review 28/2007  3  reduce or to take on more credit risk.