Credit-default swaps without the restructuring credit event trigger have rocketed in popularity since the 2003 International Swaps and Derivatives Association's credit derivatives definitions came into effect. These contracts, which only pay out if the reference entity fails to pay an obligation or enters bankruptcy, now account for around a third of the volume, according to traders.
James Mudie, general manager in the markets division at Shinsei Bank, said, "Personally, I feel that the sentiment in the market among investors is for two credit events and that it will increasingly grow from here." He added, "There's been some reluctance in the dealer community, but there's definitely trades going through."
Many dealers, however, do not think contracts without the restructuring credit event will become the industry norm. "There's definitely room in the marketplace for two CE default-swaps, but taking over as the standard doesn't look likely," said Ralph Orciuoli, managing director and Asian head of credit trading at Bear Stearns in Tokyo.
