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
Banks can use maths - rather than special chips - to boost computing speed
Analysts split on crucial questions for CDS protection holders
No ambiguity in 2014 contracts, but questions exist over 2003 vintage
Standard & Poor's found to owe duty of care with CDO ratings
Sign up for Risk.net email alerts
Nominated for two technology awards
Nominated for post trade technology award
Sponsored webinar: Collateral and counterparty tracking
Isda directors warn on fragmentation, access and liquidity - but expect problems to pass
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.