U.S. lawyers and dealers preparing a cash-settlement protocol for credit events on index-referenced contracts say greater involvement is needed by European dealers. "It is intended to be a global effort," said David Wainer, a partner at Allen & Overy in New York. "But so far the initiative has been largely led by North American-based dealers."
The documentation--sweeping amendments formalizing procedures for cash settlement of defaults in the CDX and iTraxx, and promised to the Federal Reserve Bank of New York by the March roll (DW, 12/26/05)--is intended to cover contracts both in the U.S. and Europe. Some European dealers, including the Royal Bank of Scotland, have participated, but, "Most others don't seem to be involved in the process as yet," a lawyer said.
European lawyers, however, say there is interest in a cash settlement protocol but agreed in comparison with U.S. counterparts it is a less pressing matter. One in-house counsel in London said, "To say they are not interested is unfair." He added, "U.S. firms are bound to be at the forefront of documentation because recent defaults have all been North American names."
Some of the main features of the amendments, including restructuring credit events, are more relevant in Europe than the U.S., however. "European dealers will have to play catch-up," a lawyer said. "Otherwise it won't have the effect that is needed."
