Isda definitions will boost derivatives liquidity
Real estate derivatives market participants believe that new property index definitions and trade confirmation forms, published by the International Swaps and Derivatives Association on May 4, will spur an increase in liquidity as investors become more familiar and confident in trading and legal risks are reduced.
"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.