Fine Print Bites Deutsche Bank in CDS Suit

Credit derivatives may be some of the most sophisticated financial instruments bought and sold on Wall Street these days, but at their core they really are nothing more than detailed contractual agreements that must be abided by.

Or so says a New York federal judge in a court ruling that could have big ramifications for the booming $12 trillion market for credit derivative swaps -- complex financial arrangements that are used as a form of insurance to hedge against the decline in the value of a corporate bond.

The buyer of a credit derivative swap typically makes a fixed payment to another financial institution to insure against the prospect of a corporation defaulting on a bond. If such a default occurs, the buyer need only exchange the bonds to the derivative's sponsor to be indemnified for his losses. ...