For the last seven years, Mr. Epstein, who is 36, has reconfigured the various components of fixed-income securities like mortgages or bonds to create derivative investments.

Trading Gains For the second consecutive quarter, strong revenues came from trading in foreign exchange, securities and derivative investments.

Derivative Market Hurt He also said that derivative investments - which were not around 5 to 10 years ago - were now being hurt by the rise in interest rates.

Premier Foods, the debt-laden food manufacturer, has agreed to spend £167m to end its exposure to toxic derivative investments originally designed to insulate the group from rising interest costs.

Instead, they have turned to complex strategies using derivative investments that allow them to hedge bets without putting direct pressure on falling prices.

Growth of Derivative Markets One big change since the crash has been the growing use of derivative investments that involve options and swaps to minimize market risk.

Their bonds were pummeled in 1994 by a confluence of factors: limited supply, rising interest rates, some exposure to high-risk derivative investments and a thin market.

"A meritorious suit would be one in which the company hadn't said much about having made the derivative investments," he said.

The losses came from a series of failed bets using risky derivative investments held in off-balance-sheet vehicles.

Short interest can also increase because of complex trading strategies involving options, futures and other derivative investments.