Protection sellers will benefit from structural changes, says JP Morgan

In latest fixed income research, JP Morgan views structural changes in the credit default swap market positively, indicating they address legacy contract issues and create a fungible market that is better designed for large trading volumes.

Sellers of protection will benefit in three ways, say analysts. First, sellers will benefit from receiving points upfront on investment grade names. This will ease capital concerns. Second, the risk of unexpected contract triggers is removed by the introduction of short windows for credit event and succession event lookbacks. Third, 'no restructuring' means contracts will be bond-like and have less uncertainty.

Credit events for different CDS contracts (as of 4 March 2009)