IntercontinentalExchange Group Inc. (ICE) is pitching WallStreet on new derivative contracts allowing investors to wager onU.S. homeowner defaults, six years after subprime-mortgage swapshelped fuel the financial crisis, according to five people withknowledge of the matter.

ICE, which owns the biggest clearinghouse of swaps tied to thecreditworthiness of companies, is gauging interest among banks andinvestment firms for a contract linked to a new type of mortgagesecurities that Fannie Mae and Freddie Mac started selling lastyear, said the people, who asked not to be named because thediscussions are private. The government-backed firms have issued$4.5 billion of those bonds, which share the risk of home-loandefaults, as policy makers seek to scale back their roles in the$9.4 trillion mortgage market.

Subprime mortgage derivatives were among the fastest-growingfinancial instruments during an era of innovation that fueled thecredit bubble that triggered the 2008 crisis. As the market for thenew risk-sharing debt matures, creating swaps that allow investorsto start betting against it or hedging against losses would be “thelogical next step,” said David Liu, co-manager of asecuritized-asset fund run by New York-based TIG Advisors LLC.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.