Market Shaping As An Answer To Ambiguities: The Case Of Credit Derivatives

The authors describe the social processes surrounding a new financial OTC3 derivatives market, the market for credit derivatives. They show that in contradiction with more traditional derivatives, credit derivatives generate ambiguities of a cognitive and political nature. By conducting an in-depth longitudinal qualitative study from 1996 to 2004, they document the efforts made by the promoters of the market to alleviate these ambiguities and show how the amount of resources needed results in the leadership of the most powerful. They thus provide a socially based explanation for the concentration and lack of transparency of the market. This research exemplifies the contradictions between the rhetorical justification of financial innovations provided by financial theory and the empirical realities of a modern derivative market.