"In other markets in which standardized definitions have been introduced, it has been clear that liquidity and efficiency have been enhanced as standardized contracts allow for speedier trades with less negotiation," says Kimberly Summe, general council at Isda in New York.
Summe says that some dealers had already begun to transact using confirmation drafts in advance of the final definitions. "We expect that these definitions and confirmation forms will be adopted by the industry immediately and that the vast majority of trades in the future will use standard Isda definitions," she says.
While the first real estate derivatives deals took place in the UK market in 2004, Isda decided to wait before publishing definitions of property indices and derivatives trades. "We felt that the market needed to ripen before standardization occurred," says Summe.
Isda worked with its members and representatives of the real estate indices, brokers, investors and dealers globally – though with most of the focus on New York and London – to create the definitions.
"We consulted widely on the definitions and had access to sample templates from existing deals, so the parameters of Isda’s definitions will encompass most market participants’ expectations," says Summe.