considerable volatility into the income statement and balance sheet as the CDS changes value over its life due to market conditions and due to the tendency for shorter dated CDS to sell at lower prices than longer dated CDS. One can try to account for the CDS as a hedge under FASB 133 but in practice that can prove very difficult unless the risky asset owned by the bank or corporation is exactly the same as the Reference Obligation used for the particular CDS that was bought. LCDS A new type of default swap is the "loan only" credit default swap (LCDS). This is conceptually very similar to a standard CDS, but unlike "vanilla" CDS, the underlying protection is sold on syndicated secured loans of the Reference Entity rather than the broader category of "Bond or Loan". Also, as of May 22, 2007, for the most widely traded LCDS form, which governs North American single name and index trades, the default settlement method for LCDS shifted to auction settlement rather than physical settlement. The auction method is essentially the same that has been used in the various ISDA cash settlement auction protocols, but does not require parties to take any additional steps following a credit event (i.e., adherence to a protocol) to elect cash settlement. On October 23, 2007, the first ever LCDS auction was held for Movie Gallery. Because LCDS trades are linked to secured obligations with much higher recovery values than the unsecured bond obligations that are typically assumed the cheapest to deliver in respect of vanilla CDS, LCDS spreads are generally much tighter than CDS trades on the same name. ISDA Definitions During the rapid growth of the credit derivatives market the 1999 ISDA Credit Derivatives Definitions were introduced to standardize the legal documentation of CDS. Subsequently, replaced with the 2003 ISDA Credit Derivatives Definitions, and later the 2014 ISDA Credit Derivatives Definitions, each definition update seeks to ensure the CDS payoffs closely mimic the economics of the underlying reference obligations (bonds). See also Bucket shop (stock market) Constant maturity credit default swap Credit default option Credit default swap index CUSIP Linked MIP Code, reference entity code Inside Job (2010 film), an Oscar-winning documentary film about the financial crisis of 2007–2010 by Charles H. Ferguson PAUG Recovery swap Toxic security Intercontinental Exchange Risk Participation Agreement Notes References External links Barroso considers ban on speculation with banning purely