At first glance, ratings on hedge funds seem like a good idea. The industry is notoriously opaque and regulators on both sides of the Atlantic have been increasingly vocal in their calls for greater transparency in the sector.

The rating agencies are, for the most part, focusing on operational infrastructure, including valuation processes, net asset value calculations, auditors and compliance. What they don’t cover, however, is the composition of portfolios, outstanding trading positions, details of credit exposures and intricate particulars of the firm’s trading strategy.

And few in the industry are suggesting they should.

After a year of trying - somewhat successfully - to cut down on backlogs in processing credit derivatives, the major investment banks are being told today by the New York Fed to try harder. Risk News will have the details of the meeting when it closes, but at the moment it's hard to fault the Fed's concern.

It's true that the backlog has dropped over the year and a bit since Gerald Corrigan's Counterparty Risk Management Policy group raised the problem, but that doesn't mean the issue has gone away, as the FSA pointed out last week. The Fed seems to be concerned, too, with confirmation delays in the equity derivatives market - as its president Timothy Geithner said in Hong Kong earlier this month.

Comment on the credit derivatives market on the Risk Forum.

It's difficult to fault Michael Spencer for pulling back from his merger talks with Clara Furse at the London Stock Exchange. There is a lot to say in favour of the deal, and no doubt it all came up during last month's discussions. There is certainly value in keeping 'Change in British hands rather than run at arm's length from New York, and there is a natural fit between Icap, the world's foremost derivatives broker, and the LSE, which has lacked a derivatives operation since losing Liffe to Euronext five years ago.

However, the LSE, at 1236p this morning - a market capitalisation of £2.641 billion, with a price to earnings ratio of 44.5 - is an expensive purchase. Its coevals are cheaper - Euronext stands at 34.7 P/E and Deutsche Borse 28.8. And Furse probably believes that the market is still underestimating the exchange - 1175p in April wasn't high enough for the LSE to welcome Nasdaq as a possible partner - so it's unlikely that she'll welcome any but an extremely lucrative bid from Icap.

In any case, Icap has other business, with the transition to electronic broking and its expansion into emerging markets surely taking up a good deal of time. In addition, a broker setting up home with an exchange would be an untried experiment. Better for Spencer to cultivate his own garden.

Discuss the LSE and exchange consolidation on the Risk Forum.

More details are emerging about the $6 billion loss at the hedge fund Amaranth Advisors - the fund's founder, Nick Maounis, told investors on Friday that they were pulling out of the energy sector altogether, and blamed unexpected volatility and a lack of liquidity in the natural gas derivatives market for the disaster.

Macroeconomist Brad Seltser makes the point that saying "we lost money because the markets were more volatile this year than any year since 2001" is not very impressive - 2001 wasn't that long ago, after all.

And California-based academic J. Bradford DeLong praises Blackstone Capital for becoming sufficiently worried by Amaranth's energy successes to pull out of the fund before the smash came. Amaranth's energy trading, led by its Calgary-based desk head Brian Hunter, had been impressive - $1.26 billion profit in 2005, and $2.17 billion in the first eight months of 2006.

No doubt pension fund managers are now assessing the damage that the high-performing fund's troubles are having on their own portfolios, but the more important message is the one Amaranth sends to the rest of the risk management community. Maounis told his investors - and there is no reason not to believe him - that the fund had adequate risk management procedures, including stress testing, in place. Blackstone aside, the world's top financial players - Credit Suisse and Morgan Stanley among them - looked at Amaranth and liked what they saw. And yet Amaranth's position was terribly fragile.

Was it simply a question of a trader operating (from Calgary, thousands of miles from Amaranth's Connecticut base) without sufficient supervision? Or is Amaranth the sign that the cutting edge of risk management technology is still not good enough to handle the risks that some investors take?

Discuss Amaranth on the Risk Forum.

Fitch Ratings’ credit derivatives survey reveals there is little market consensus on broad market growth. Opinions on the pace of growth in the market varied wildly—from robust to moderate or even slow growth. Respondents pointed to plain vanilla CDS, CDO-squareds, options on CDSs, and first-to-default baskets as product areas set to decline.

It could be argued that CDO-squareds are already past their prime and options on CDSs never really gained much traction. However, that a slowdown in plain vanilla CDSs is on the horizon, is noteworthy. Have index products taken over the market or have plain vanilla CDS volumes hit a ceiling?

Discuss the credit derivatives market on the Risk Forum.

Corporate activity—leveraged buyouts, refinancings, corporate restructurings—have affected the credit default swap (CDS) market this year in an unprecedented way - read this article from Risk for details. CDS buyers and sellers have been required to take a crash course on the finer points of corporate finance in order to manage their positions. Were spreads going to tighten or blow out? Were managers going to be left with an orphaned CDS?

Investment bankers seem to think the anxiety around these issues has abated, but some members of the hedge fund community beg to differ. Brand name credit fund managers say confusion still lingers and believe there is still work to be done. Is there clarity on this subject or are there still lessons to learn?

Comment on the unpredictable CDS market on the Risk Forum.

Coming out of our interdealer rankings this year, it’s the same story again: a few banks at the top of each field and the rest nowhere. As Joe Morgan points out in the September issue, the rankings tend to be dominated by the same names – Citigroup, Credit Suisse, Deutsche, Goldmans, JP Morgan, UBS – with a few of the more recent entrants joining them at the top, such as BarCap, RBS, Societe Generale and BNP Paribas. Many of the banks are happy – or at least willing – to admit that in most of the derivatives world you are either top rank, or nowhere.

Over in the broker survey, it’s a similar situation – Icap and Tullett Prebon fight it out every year for the top spot, and the third place is far behind.

It looks as though the increasingly transparent market, and the immense advantages of scale in all but the most specialist areas, are lifting the barriers of entry to the derivative markets beyond the reach of any aspirant banks. Perhaps, too, brokers should be facing up to the fact that they are rapidly moving towards a commoditised business of entirely electronic broking.

Any thoughts? Comment on the Risk Forum.

The Risk blog is live now, as is the forum - what should we do next? Podcasts, videocasts, recorded interviews online, seminars, market reports or something we haven't even thought of yet? Throw out your suggestions in the Forum.