Buy-side credit-default swap protection sellers are resisting adopting ISDA's Credit Derivatives Physical Settlement Matrix, or CDS Matrix, one of the most recent developments in dealer efforts to reduce a trade assignment backlog.
John Gatsos, associate general counsel at Amaranth, said non-dealer participants are reluctant to sign up to the Matrix because it designates dealers as calculation agents rather than allowing parties to negotiate the role. Calculation agent designation in the bilateral ISDA Master Confirmation is a precondition for matching CDS trades at the Depository Trust & Clearing Corp.
"Standardization leads to a lack of freedom for negotiated benefits," Gatsos said. "The major dealers made these commitments without participation from any segment of the buy side of the credit derivatives market," he said. "The same was true when the major dealers recruited ISDA to establish the Novations Protocol." Gatsos added DTCC's recent Notice adding an option for calculation agent so far has not succeeded in winning over protection sellers and that amendments to Master Agreements may be needed.
Karel Engelen, ISDA policy director, said a working group looking at dispute resolution language across products is attempting to address buysider concerns.
