Isda to publish rules for European loan derivatives

The International Swaps and Derivatives Association will publish an industry-wide standard contract for trading loan derivatives in Europe by the end of May, according to David Geen, Isda’s European general counsel in London.

Isda has been leading discussions since the end of last year with a working group of eight to 10 dealers, and a wider group of bankers and end-users, to decide a contract that could result in increased volumes of trades. “People are waiting for an Isda document before they get into the market. We are hearing that there are trades waiting for the document,” said Geen.

He explained there were differing views about the type of contract wanted, so the final document will be a compromise, offering a cancellable reference-based contract with an option for non-cancellability, so users can choose whether or not the contract will transfer to a new loan when the underlying debt is repaid.

Geen said that once the contract is published, iTraxx will roll its LevX index of European loan credit default swaps into the non-cancellable form, which could drive the market generally in the same direction.

Four main banks involved in the discussions - Morgan Stanley, Citi, Goldman Sachs and JP Morgan - declined to comment.