A group of banks led by Morgan Stanley is pushing for the European credit-default swap market to follow the lead of the U.S. and adopt a standardized quarterly termination date for all CDS deals. But so far their arguments have failed to convince a trio of industry heavyweights--JPMorgan, Deutsche Bank and Goldman Sachs. These three believe CDS players in Europe should have the flexibility to trade swaps with a monthly termination date, even though their New York offices have already signed up to the quarterly standard.
Morgan Stanley is pondering its next move after a conference call it organized last Tuesday failed to produce a consensus, according to an individual familiar with the matter. Ten dealers took part in the discussion.
Morgan Stanley and Lehman Brothers said they are in favor of quarterly dates to facilitate growth and liquidity in the CDS market. "It is important to show a common face to the market," said Anjan Malik, co-head of credit trading at Lehman in London. Similarly, Chris Goodlad, v.p. in the credit products group at Morgan Stanley in London, said the firm believes the European market would benefit by harmonizing with the U.S. because customers that have global exposure prefer consistency in their portfolios.
The trio resisting the move explained that their stance is primarily customer-driven. Guy America, European head of corporate credit trading at JPMorgan in London, said it is more efficient to use both monthly and quarterly dates, as these allow a dealer to cater to customer's requests more easily. An official at Deutsche Bank in London said the firm is in favor of being able to use monthly dates for similar reasons. Simon Morris, head of European credit trading at Goldman Sachs in London, added that the firm's stance is driven by requests from its customers.
