It is encouraging to find market participants taking a leading role in making the improvements in risk management that will be needed to fully reap the benefits of innovations in credit markets. The third and final challenge I will discuss is that of infrastructure.
The very rapid growth of trading credit derivatives had until recently outpaced the development of the infrastructure necessary to clear and settle those trades. Post-trade processes were largely manual, with attendant inefficiencies and risks. By early 2005, credit derivatives dealers had huge backlogs of unconfirmed trades, even though they had greatly increased their back-office resources.