Cash settlement

Indra Rajaratnam

23.1 INTRODUCTION

This chapter examines cash settlement under the terms of the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b). It begins by identifying the benefits and risks related to cash settlement and provides a description of the cash settlement mechanics. The chapter also discusses the process for determining the “final price” through the dealer poll valuation procedure as well as the factors that need to be considered when selecting a valuation date. Important concepts such as the valuation timing and methods, the type(s) of quotation, the quotation amount and methods are also discussed. The final section of the chapter elaborates the valuation procedure that applies in cases where the 2014 Definitions provide for a deemed cash settlement under the “Partial Cash Settlement Terms”, and the ‘Restricted Delivery Party Additional Provisions (International Swaps and Derivatives Association Inc. 2015; henceforth, the “Restricted Delivery Provisions”), which apply cash settlement to certain in-scope transactions. The chapter concludes with a brief discussion on the amendments that would

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