A credit derivative is designed to transfer credit risk from one party to another. There are three basic credit derivative structures as detailed below. If your stockbroker or brokerage firm persuaded you to purchase structured products that exposed you to excessive risk without fully explaining those risks, talk to a securities fraud lawyer at the law offices of Dimond Kaplan & Rothstein, P.A., in Miami, West Palm Beach, Los Angeles and New York City.
Our Miami credit derivatives attorneys represent wronged investors throughout the state of Florida (in areas such as Miami or Ft. Lauderdale, for example), throughout the U.S. and throughout the world. Types of credit derivatives include:
- Credit Default Swap: Two parties enter into an agreement whereby one party pays the other a fixed periodic payment and the other party makes a payment to the first party if a specific credit event occurs, such as a default, bankruptcy, or debt restructuring for a concerning a specific asset.
- Total Return Swap: Two parties enter an agreement whereby they swap periodic payments over a specific timeframe. One party makes payments based upon the total return — interest plus capital gains or losses — of a specific asset. The other party makes fixed or floating payments, similar to a simple interest rate swap. Both parties' payments are based upon the same notional amount. The reference asset can be almost any asset, index or basket of assets.
- Credit Linked Note: A debt instrument is bundled with an embedded credit derivative. In exchange for a higher yield on the security, investors accept exposure to a specified credit event. For example, a note might provide for principal repayment to be reduced below par if a specific asset defaults prior to the maturity of the note.
The difference between a credit default swap and a total return swap is in the type of protection provided. The credit default swap provides protection against a specific credit event. The total return swap provides protection against loss of value irrespective of cause – a default or market sentiment, for example.
Contact a Miami or West Palm Beach Credit Derivatives Trading Lawyer
Did your stockbroker or brokerage firm mislead you into investing in unsuitable financial products such as credit linked notes or total return swaps — resulting in losses to your investment portfolio? Contact a Miami credit derivatives attorney to discuss your investment troubles and possible explanations stemming from broker or brokerage negligence.