28 Oct 2008, David Benyon, Operational Risk & Regulation
LONDON & NEW YORK – The International Swaps and Derivatives Association (Isda) has released credit default swap (CDS) settlement protocols for failed Icelandic banks Glitnir, Kaupthing and Landsbanki.
Around $71 billion in CDS contracts on the three banks must be settled, according to the New York-based Depository Trust & Clearing Corporation (DTCC). This is split between $19.2 billion outstanding on Landsbanki, $18.5 billion on Glitnir and $34.3 billion on Kaupthing.
After netting down protections bought and sold by the same big players – which has reportedly successfully limited exposure to Lehman CDS counterparties – actual exposures might be around $14.8 billion, says the DTCC.
The new protocols aim to offer affected counterparties an efficient mechanism for the settlement of credit derivatives transactions. They offer institutions the opportunity to amend documentation to use auctions, scheduled by administrators Markit and Creditex for November 4, 5 and 6, to settle contracts referencing the three defaulted institutions.
David Geen, general counsel for Isda, said: “These are the first credit events to occur in the European market since Isda started publishing protocols for settlement. The experience of running these protocols successfully for over a dozen North American credit events will be of enormous benefit in ensuring the process runs equally smoothly in Europe.”
The Isda protocols are available until October 31 and are open to members and non-members alike.