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Derivatives

Credit Traders Discuss Need For Standard Start, End Dates

Credit professionals are considering making credit-default swap trades take immediate effect on the day of sale, rather than after the current three day hiatus, and standardizing end dates. Talks have taken place over the past two weeks, but no formal initiatives have been proposed to the International Swaps and Derivatives Association, according to traders in London.

At the moment when clients buy credit-default swaps they are not protected until three days later. In addition, there has been an increasing desire among dealers to have a standard monthly end date, because a mismatch of maturities could leave the buyer of protection unhedged. Market nervousness because of deteriorating corporate creditworthiness has triggered discussions, traders said.

These two initiatives are not the main focus of the market with so many recent credit events taking priority. And one said the issues are a low priority. Another trader said the time gap between settlement and effective date is a moot point because if a credit event is that imminent, parties would be unlikely to sell protection.

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