Auction settlement

Indra Rajaratnam

22.1 INTRODUCTION

The expedition has now reached settlement of a transaction, and the exploration begins with the mechanics of the standard settlement method, namely auction settlement. The chapter begins by providing a background on the challenges relating to physical settlement which ultimately led to reforms that hardwired auction settlement as the standard settlement method for credit derivative transactions. It also introduces the architecture of the transaction auction settlement terms, and briefly describes the conditions that must be met for a transaction to fall within the scope of an auction as well as the mechanics of auction settlement. The circumstances that can lead to there being no auction, the events that give rise to the application of the fallback settlement method and the movement option (in the context of an “M(M)R Restructuring”) are also examined. The chapter concludes by describing the technology that underpins the two-stage auction final price determination process using the 2019 Thomas Cook Group plc Credit Derivatives Auction Settlement Terms (DC Administration Services (2019); henceforth “Thomas Cook Auction Terms”) as a practical illustration of an

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