The Bond Market Association is considering setting up an online deal library for collateralized debt obligations that would centralize documentation and promote transparency in the market. Nadine Cancell, v.p. and assistant general counsel, says the trade group's CDO committee, which was formed last year, is discussing the notion of creating an information point and has not made any decisions as to what would be included. However, she says the general thinking is that the site would provide enough information to allow dealers and investors to "reverse" a deal, or break it down to its parts. This would allow them to put the information into their own analytical models, which in turn would likely make them more comfortable in taking on risk and lead to a boost in the secondary markets.
Although transparency has improved, the CDO market still remains a private one, with banks hesitant to share their documentation with the entire market. And, even as third-party providers such as Intex Solutions have some documentation on private deals, they offer the information in a so-called black box format--meaning outsiders cannot put the information into their own models. Investors and dealers also need to subscribe to Intex and other providers, which also leads to fragmentation. The Bond Market Association's site would likely be open to all qualified institutional buyers.
One buy-sider welcomes the initiative, saying a centralized site is needed. "The BMA would add some quality control to it," says Ron D'Vari, head of structured finance at State Street Research & Management. He says libraries run by third-party vendors are useful, but not entirely reliable. "Do I have 100% confidence in them? No. I feel more confident where there are more eyes on it and when it's publicly available." One sell-sider at a member firm was less optimistic: "It's pretty damn ambitious," he said.
The CDO committee, which met last week but did not come to a conclusion, is likely to meet again later this summer or in early autumn. The creation of a site would mark a change for the trade group, which tends to act more as an outside advocate on behalf of the dealer community.