How about trading in credit derivatives?

Any innovative product is welcome.  Derivatives are also welcome.  The base layer innovates and reduces its risk.  It has achieved its objective of earning (perhaps to a limited extent). 

We need regulation at the secondary layer.  The secondary layer should be subjected to scrutiny - industry regulator, ombudsman.  The scrutiny should not only involve the deemed cost benefit analysis but also on recovery capability.  At the tertiary layer, the scrutiny should be much more stringent. 

Ombudsman or industry regulator or both, should in a time bound manner have the power to reverse the transaction. 

Ultimately it is public money as we have seen in the failure of major banks.  It is not a question of corporate independence. 

While encouraging credit derivatives the objective should be "trust - verify".  Trust should be that the secondary/tertiary layers have taken a sound business decision.  Verify is for the public good. 

Yes, Padmanabhan is right, in spite of having so much good options, there are lot of risks associated with the credit derivatives. So, proper care should be taken while investing and one should also have proper market knowledge and the risk associated with these credit derivative before expending on them.

If there are any loop holes in this. Then this product will or may create a bubble in months/years  to come,  in hands of a knowledgeable and able, but manipulative market players & eventually may lead to what has happened in west....Credit crisis..

Credit  is one of the important cog wheel in the business of money. Its regulation is one of the key for healthy credit market conditions.

I feel---- if credit derivatives as a market is not adequately monitored, but if it has been  just implemented...for sake of giving a new flavor in financial markets

Then Credit Derivatives may or  will be Weapons of Mass Destruction for future business conditions........