LONDON, July 2 (Reuters) - Thirteen major players in the $62 trillion credit derivatives market plan a new process starting July 31 to boil down millions of trades that cancel each other out to a smaller number showing actual risk exposure.

A working group of dealers and investors at the International Swaps and Derivatives Association (ISDA) began discussions in early May on what is called "portfolio compression", which reduces the number of items in credit portfolios without changing underlying risk.

The group selected Markit and Creditex to provide a platform to compress trades in single-name credit default swaps (CDS) across different counterparties, ISDA said in a statement on Wednesday.

This is one of a number of efforts, including plans to launch a new clearing house soon, that the industry has been developing to reduce the risks that operational foul-ups or counterparty failures pose to the market.

Compression would make portfolios simpler and easier to manage for the back offices of banks and large investors and reduce the level of capital banks must set aside to trade CDS by chopping the number of trades on their books and the gross notional value of their holdings.

For example, a big U.S. bank could have 500 trades on senior France Telecom debt that mature on the same day, some long and some short, with the 12 others in the initial group.

Its net exposure could amount to 75 million euros long, i.e. having sold protection against a France Tel default.

Under the new compression platform, its exposure would be replaced with one 75 million euro CDS contract with one counterparty. Or if its overall exposure to that counterparty is not balanced, the contract could be split into more than one.

"It's a good way to make the market a bit clearer and focus on the real risk outstanding," said Jeff Gooch, executive vice president of Markit.