Documentation dilemmas

Concerns over credit event definitions and the Basel Committee’s ‘ w ’ capital charge on credit mitigation instruments will not be easily resolved.

The credit derivatives market is unexpectedly at a crossroads. The burgeoning volumes of default swap and structured transactions over the past two years drew attention away from potential problems embedded in the default swap documentation. But the recent decline in corporate credit quality has now brought these to light. Dealers are beginning to realise that this is still a new market, and its teething pains are far from over.

Protection buyers, sellers and intermediaries now find