Isda expands CDS template range

The International Swaps and Derivatives Association has published another template for credit default swaps (CDS) on asset-backed securities (ABS), this time permitting pay-as-you-go settlement.

It follows the industry body's release last week of a cash or physical settlement template for CDS on ABS (See: CDS on ABS set for growth as documentation and sentiment improves). The pay-as-you-go template is primarily designed for use with residential or commercial mortgage-backed securities, which are more commonly the subject of CDS on ABS in North America.

The association expects the pay-as-you-go template to become the market standard for CDS on ABS, as it will allow transfer of risks associated especially with single-name ABS CDS. Home equity securitisations will probably dominate the market, according to an examination of ABS CDS published recently in Risk (See: June 2005).

With CDS increasingly seen as a trading instrument as well as a hedging tool, and ABS a popular asset in all ratings categories, the new documentation is expected to see heavy use in the months ahead.