Derivative Product Company (DPC)

As a result of quantitative driven synthetic derivatives and other constructs by investment bankers and traders since the 1990s, an entirely separate derivatives creation and trading has emerged. International market expansion created the need for foreign currency hedges. Credit default swaps for risk mitigation have exploded in their ubiquity. Equity and interest rate derivatives have also expanded their open interest significantly.

A derivative product company (DPC) is a special purpose vehicle that is most often a subsidiary of a securities firm or a financial institution, and is created to specifically handle derivatives related risk offset work. In order to require the minimum amount of capital to operate, they are structured in such a way as to be able to obtain AAA status. This allows the DPC to function without posting collateral that might be required when dealing with a counterparty of like rating.

Usually armed with a team of quantitative analysts, the DPC is equipped to customize a derivative for a client to offset most any kind of market risk in which the parent also engages. An analogy to the DPC is like Star Lord in Guardians of the Galaxy 2. As the only offspring of the godlike Ego to be worthy of wielding his power, Peter Quill, a.k.a. Star Lord, was the AAA offspring being groomed for the select but lucrative new horizons Ego wished to conquer.