A monoline-friendly template for credit-default swaps referenced to asset-backed securities is in the works, after insurers rejected the International Swaps and Derivatives Association's pay-as-you-go format. Monolines rebuffed the template because it did not allow them to set their own terms on issues such as credit events and voting rights (DW, 5/20). The pay-as-you-go template also allows for physical settlement, which means dealers can settle trades all at once, posing liquidity risks to insurers, explained one official at a monoline in New York.
Monolines are currently seeking a law firm to assist in drafting the template, said the official, adding he expects it will be completed within a few months. ISDA is helping put together the new document, noted spokeswoman Louise Marshall, declining further comment.
