Flows in credit-default swaps on tranches of collateralized debt obligations have triggered an effort to standardize documentation for trading. The International Swaps and Derivatives Association has just begun targeting the issue and an inter-dealer working group is in the works, according to dealers involved in discussions.
Several hundred million dollars worth of CDS on CDO tranche trades--primarily referencing mezzanine tranches of high-grade asset-backed security CDOs--have traded since January, according to dealers. But there is still some holding back. "We have seen a perceptible increase in focus on CDS CDO tranches since the beginning of the year," said one dealer involved in discussions. "So far, more people are talking than trading," he added. "A lot of accounts won't trade until documentation is standardized. But we expect standardization to lead to meaningful growth in volume of CDS on CDO tranches."
Louise Marshall, ISDA spokeswoman, confirmed the project, but said it is too early in its infancy to comment further.
