By Chris Kentouris

JPMorgan Chase & Co. is providing its analytical system for credit default swaps to the International Swaps and Derivatives Association, which plans to make it freely available.

The technology was created by JPMorgan Chase's quantitative research group and is commonly used in the industry for pricing credit derivatives. The ISDA said distributing the system more widely would increase transparency in a market that has come under increased scrutiny and spawned a proposal by Congress to restrict credit default swap trading to investors that own the underlying bonds.

"JPMorgan has invested a lot of intellectual capital in this analytical engine," said Robert Pickel, the trade group's executive director and chief executive. "Its willingness to assign this to ISDA for us to make available to the entire industry demonstrates our collective commitment to the integrity of the CDS product."

According to the trade group, one goal of the agreement, announced last week, is to avoid disputes over settlement calculations for a North American swap contract the ISDA is designing.

"The ISDA is working with industry players to further standardize the terms of the CDS contract," including such areas as "hardwiring the auction settlement mechanism," said Karel Engelen, the group's director and head of technology solutions. "Standardization will facilitate centralized clearing."

Tom Price, global head of credit for Markit Group Ltd., a provider of valuation and processing services, said his company is heading a committee to review the credit default swap model.

"Industry consensus on a model is an essential part of the launch of a new North American CDS contract," Price said.

Mark Ferguson, the director of research for Quantifi Inc., a Summit, New Jersey, provider of credit derivative pricing and risk analytics software, said several major exchanges are establishing counterparty services for the swaps, in response to guidance from U.S. regulators. JPMorgan Chase's transfer of its model to the ISDA will ease the transition, he said.

This article was originally published on AmericanBanker.com.

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