Dealers trading on separate International Swaps and Derivatives Association templates for credit-default swaps on asset-backed securities in Europe and the U.S. said a proposal is being floated to move the European form closer to the U.S. version. The U.S. and European templates both were published in June, with different terms for settlement. The U.S. form uses pay-as-you-go, with the potential for physical settlement if the protection buyer has the bond to deliver. The European version provides for physical settlement, with the option to cash settle.
"There is not a lot of activity on the European form," said a trader for a European bank in New York, noting it is difficult to get good quotes without bonds to deliver. "Largely because the underlying is a U.S. dollar product, we are seeing more market acceptance for the U.S. model. It is becoming the market standard." ISDA officials said they were not looking into combining the docs, but would if they saw sufficient market demand.
