JPMorgan has proposed a popular compromise to the question of deliverable obligations for credit-default swaps--one of several key issues to be resolved in the creation of standardized settlement mechanics. A sticking point has been that lists of deliverable bonds are currently determined by a poll open only to dealers. The new proposal would allow all market participants to suggest exchangeable debt for a fee.
Kimberly Summe, International Swaps and Derivatives Association general counsel, said the fee would help create short, well-vetted lists. Dispute resolution likely would be extended from 30 days to 45 days. Other proposals have been made but dealers and end users appear most comfortable with this compromise.
Other open issues include procedures for dealing with disputes over receiveables on the list, auction errors and converting old trade contracts once settlement mechanics are finalized. ISDA is looking at methods used by exchanges in dealing with errors and is leaning toward a "Big Bang" protocol for converting all existing contracts at once.
Actual auction methodology appears more certain. ISDA likely will create a settlement committee of dealers and end users. It plans to put out an explanation when it is surer of details. "[Standardizing settlement mechanics] has been a headache," Summe said. "But it's necessary to come up with a long-term solution given the growth of the market."