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Market dislocation boosts CDO trading

The lack of real-time information has always meant that trading CDOs has never been for the faint of heart. Goldman Sachs led the charge to improve the situation last summer by making data on all its deals available to investors on data service provider Intex. Three other underwriters have followed suit.

It's a start, but what has acted as a real boon to trading CDOs is last year's deterioration in credit prices. For some investors, it's an opportunity too good to pass up.

"Secondary trading really has picked up, especially for senior pieces," says Greg Mount, global head of CDOs at Goldman Sachs. Several factors are driving this. First, there are investors getting out of the market, because they have been burnt or because, as Mount says: "They are concerned that under the FASB rule Fin 46 they will have to bring these assets onto their balance sheets. The ABS conduit vehicles especially are concerned about this."

A second reason for discounted prices is that some deals might now be lacking a manager, either effectively or in reality. "Some are being liquidated, some have had the manager thrown off the deal," says Mount. "And some, such as the 1997 vintage deals that have performed badly, are beyond their reinvestment period, or the managers have given up because their fees are subordinated and they're not getting paid any more."

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