The European synthetic market continues to be strong with a wide variety of derivative-linked products being offered to investors. One issue currently facing the market is the debate over the templates to be used for credit default swaps on asset-backed securities.

JP Morgan Securities said in a research report on the sector published in March that CDS of ABS represents a major development that will allow ABS players to take risks synthetically and also allow dealers to short the market and hedge existing positions. To date, ABS has primarily been a long-risk, cash-only market. In the past, the lack of standard documentation, a conservative rating agency approach to ABCDS settlement issues, and a lack of protection buyers for the product have stymied the development of a liquid single name market, said analysts at JP Morgan. However International Swaps & Derivatives Association standard documentation on a CDS template is slated to wrap up this month but opposition from the monolines threatens to stall developments.

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