Credit default swap overhaul proposed by key trade body

City A.M. Reporter
THE INTERNATIONAL Swaps and Derivatives Association (ISDA) yesterday proposed the first major overhaul of credit default swaps in a decade, looking to fix perceived flaws in the CDS market in the wake of Greece’s troubled restructuring and the sovereign debt crisis.

The primary change concerns how to make sure that those who purchase sovereign CDS are adequately compensated, after it became clear that some who bought protection on Greece might not have received a sufficient payout.

“This is part of ongoing work: to look at the CDS definitions and see what changes might need to be made in light of the events of the last 10 years, and more recently the financial crisis and European sovereign debt crisis,” Mark New, assistant general counsel at ISDA, said.

Traders say that an EU-wide ban on speculative sovereign CDS that was imposed in November has halved sovereign CDS volumes overall. It is not clear when ISDA, an industry group, would be able to finalise the changes to CDS contracts.