Dealers were expecting physical settlement of single-name credit-default swaps on Delphi Corp. to be smoother than anticipated on first news of the default. Last month, when the corporate defaulted, dealers were believed to have tens of thousands of outstanding contracts--more contracts, it seemed, than bonds they could physically deliver. Since Delphi's default Oct. 8, however, dealers have been netting CDS exposures and tearing up contracts. Officials this week said they have only a fraction of the contracts they had a few weeks ago and that they expect to physically settle well under half of them.
The International Swaps and Derivatives Association's hybrid settlement procedure called for cash settlement of index trades and physical settlement of single names (DW, 10/21).