The International Swaps and Derivatives Association is set to release a draft template this week for trading credit default swaps on tranches of collateralized debt obligations. An ISDA spokeswoman said a five-day comment period will follow the release of the draft and a final document is expected in June.
The project has been in the works for several months and involved the same inter-dealer working group that drafted documentation for credit default swaps on asset-backed securities. The spokeswoman said the draft will be modeled on the pay-as-you-go formula used for ABS CDS, but will leave the treatment of implied writedowns open to optional PAUG or physical settlement. Dealers involved in the discussions expect the documentation to significantly boost trading volumes.