Synthetic asset-backed securities now make up the bulk of the structured finance market, said Rajiv Kamilla, v.p. in structured products trading at Goldman Sachs in New York. Kamilla and Todd Kushman, product specialist for ABS derivatives at Bear Stearns in New York, said notional single-name ABS credit-default swaps amount to USD1 trillion and the synthetic residential and commercial mortgage-backed securities indices, ABX and CMBX, are seeing "huge volumes." Alex Wei, senior v.p., head of structured credit investments and chief quantitative analyst at Delaware Investments in Philadelphia, said synthetic ABS has virtually eliminated cash ABS collateralized debt obligations.
There is now an active, two-way market for synthetic ABS, panelists said, allowing participants to express positive views beyond supply constraints and negative views for the first time. "The ability to go short is a powerful feature of any marketplace," Kamilla said. "The market has become more democratic." CDO managers dominate protection selling and dealers dominate protection buying, but panelists said they are seeing hundreds of new market entrants looking to express views outright or in basis trading. "Everyone has different views," Kushman said. "That's the fun part."
