Tokyo-based Daiwa Securities, Japan's second largest domestic securities house, is considering setting up a credit derivatives operation within the next year and will look to become a player in the interbank market. An official at Daiwa added that the firm is in the initial research and development stage for the operation and that no timetable has been established. Daiwa will wait for market conditions to improve and may wait for a rating upgrade that would allow it to be more competitive with international banks. The official expects its rating to be upgraded within 12 months. Daiwa is rated Baa1 by Moody's Investors Service.
Daiwa has structured credit-linked notes for its clients for over two years and sees the establishment of a credit-default swap desk as a natural extension, noting the potential of the growing market. Although specifics have yet to be decided, the official said he will likely hire a trading and sales team for the effort. The firm will look to sell credit-default swaps to clients, as well as trade the product for its own book.
"The more players the better," noted a credit derivatives trader at an international house in Tokyo, as it will boost liquidity and could introduce new clients to the products. He continued that liquidity has improved this year because several banks have entered the Japanese credit derivatives arena.
