The International Swaps and Derivatives Association is set to release a draft template for trading credit-default swaps on tranches of collateralized debt obligations by the end of this week, with a final version following next month. Louise Marshall, ISDA spokeswoman, said the draft will be followed by a five-day comment period before being finalized.
The project has been in the works for several months (DW, 4/14), and involved the same inter-dealer working group that drafted documentation for credit-default swaps on asset-backed securities. Marshall said the draft will be modeled on the pay-as-you-go formula used for ABS CDS, but will leave the treatment of implied writedowns open to optional PAUG or physical settlement. Dealers involved in discussions expect the documentation to significantly boost trading volumes.
