UBS Warburg has agreed to join Morgan Stanley and J.P. Morgan in standardizing credit-default swap agreements between the major counterparties, according to Mike Pohly, head of credit derivatives at Morgan Stanley in New York. Officials at UBS did not return calls.
The agreement will differ from the International Swaps and Derivatives Association's agreements because it will only be used between market makers, while ISDA's documents are for the entire market, including end users. The derivative houses' document is meant to be more of an internal reference strictly for market makers, said Kimberly Summe, general counsel at ISDA in New York.
In late November, J.P. Morgan and Morgan Stanley agreed to standardize agreements between themselves. However, according to Pohly, the plan is larger than that. Morgan Stanley wants to create a one-page master, which contains variables that need to be set for each swap transaction. The firms are working to standardize 22 of the 30 variables used in swaps. One of the variables it is working on is which credit events trigger a default, another is the acceptance of convertible bonds as deliverable assets in the event of a credit default. The master agreement will help cut down on added paper work and make trades unfold more efficiently, according to Pohly.
