The International Swaps and Derivatives Association plans to incorporate the credit default swap (CDS) settlement auction process into the 2003 Isda credit derivatives definitions by mid-March.Isda will apply the changes both to new and existing derivatives contracts. Amendments will also include provisions for the Isda determinations committee, which will make decisions on issues such as whether a credit event has occurred, whether an auction will be held and whether a particular obligation is deliverable.
"The hardwiring process is a crucial part of the ongoing process undertaken to strengthen the infrastructure of the CDS market. Isda and its members are keen to complete the work as soon as possible," said Robert Pickel, chief executive of Isda. "However, given the importance of this matter, it is essential that we take the time to ensure the process functions efficiently from day one."
"Hardwiring" refers to the fact the auction process will become an integral part of CDS documentation, rather than a separate set of procedures.
This is one of the goals the Operations Management Group - an industry body comprising 15 major dealers and three industry associations, including Isda - set in a letter to the Federal Reserve Bank of New York on June 9 with the aim of improving operational risk management for over-the-counter derivatives. The March deadline is somewhat later than the initial target of the end of 2008. Isda said the original timetable was affected by the major market disruptions of September and October 2008, including the credit events relating to Fannie Mae, Freddie Mac, Lehman Brothers, Washington Mutual and the three Icelandic banks, and the resulting accelerated timetable mandated for central counterparty clearing.
Since the start of September, Isda has hosted 15 CDS settlement auctions, all of which the organisation says have run smoothly.
More on Credit Derivatives
Vladimir Piterbarg considers a non-linear partial differentiation equation that appears in a number of XVA-related contexts, including a one-way credit-support annex, credit value adjustment with ri...
Up to 10 new names from under-represented sectors could be added to high-yield CDX index
China's CDS market needs new structure if it is to win over investors
Arbitrageurs have exited trades, leaving basis structurally higher
Sign up for Risk.net email alerts
Sanjay Sharma talks about risk transparency and how his book helps achieve it.
A five-minute formula from Alexander Denev that takes you through a simple probabilistic graphical model and explains how and why these are used. Find out more about the ground-breaking book, Probabilistic...
Industry leader Vincent Kaminski discusses the challenges faced by energy markets and his new book, Managing Energy Price Risk, 4th Edition.
Momtchil Pojarliev talks about his book, The Role of Currency in Institutional Portolios, currency investing and the potential role of currencies in institutional portfolios.
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.