Learning Curve

Following on from last week's Learning Curve discussing the basics of swap provider diclosure under Regulation AB, part two delves into timing and indemnification issues.

In Item 1115 of the SEC's Regulation AB, published in final form in December 2004, the SEC has taken big strides in coming to grips with swap agreements.

Credit market participants are often interested in the ability to compute prices of non-standard single tranches on index portfolios such as iTraxx and CDX.

One need look no further than the settlements paid by financial institutions post-Enron--over USD7 billion--to recognize that complex structured finance transactions have the potential to create enormous risk to the entities engaging in those transactions.

Following on from last week's discussion of the impact of Standard & Poor's new synthetic collateralized debt obligations ratings model, S&P describes the workings of the model itself.

Standard & Poor's changes to its collateralized debt obligation rating methodology, primarily in the form of lower assumed default rates for investment grade assets rated A and above, are significant and will have a large impact on the CDO market.

China's collateralized debt obligation market is best described as embryonic.

In most derivative master agreements, parties indicate the substantive law that will govern disputes arising from the agreement through a provision stating the agreement will be governed by and construed in accordance with the laws of a specified jurisdiction.

This Learning Curve follows on from last week's discussion of the Pay-As-You-Go form for credit-default swaps on asset-backed securities.

Prior to the publication of the Credit Derivative Transaction On Mortgage-Backed Security With Pay-As-You-Go Or Physical Settlement by the International Swaps and Derivatives Association, dealers and users had started executing swaps on sub-prime MBS using customized versions of credit-default swaps and total-return swaps.

About 12 years ago, the typical product range on offer to private banking clients consisted of:

For this week's Learning Curve in PDF format, click here.