Six of the largest credit derivatives houses were planning to meet--as DW went to press Thursday--to bash out a one-page confirmation document. Lawyers representing Credit Suisse First Boston, Deutsche Bank, J.P. Morgan, Goldman Sachs, Merrill Lynch and Morgan Stanley were scheduled to meet Friday and one official at Deutsche Bank predicted the document should be ready within weeks.
The new document will cut the time taken to process a trade from over a month to a couple of days and as a result will allow traders to spend more time trading, according to the Deutsche Bank official. He added that the document will then be rolled out to second tier banks and major hedge funds, which in total account for approximately 40% of trading volumes.
At the moment the counterparties to a plain-vanilla credit derivatives trade have to sign a confirmation which is over 10 pages long and includes every aspect of the trade. This often takes over a month and most banks have a pile of these documents waiting to be singed, according to traders. The lawyers are working on a one-off document which contains all of the declarations, such as what triggers the contract, and a one-page document which would only contain the economic factors, such as price, reference entity and maturity.
However, one trader said this is only the first stage, adding that the ultimate aim is to change the process completely and use the term sheets as confirmation documents. But this cannot be introduced unilaterally as it requires each firm to change its systems to send and receive term sheets as confirmation.