Physical settlement

Indra Rajaratnam

24.1 INTRODUCTION

This chapter focuses on physical settlement. It begins with the mechanics of physical settlement, and explains the cheapest-todeliver option. A recap of some of the relevant notices connected with physical settlement, as described in Chapter 19 (on Notices), is also provided. The discussions in this chapter also feature the asset package delivery framework, the constituents of an asset package and a description of asset package delivery and its implications on settlement of a transaction. Relevant to physical settlement, an overview of the provisions under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b) in relation to effective delivery, the responsibilities of the parties in connection with settlement and the deemed representations that are provided by a buyer to a seller are also outlined. In conclusion, the practical issues that pose a barrier to physical settlement, as highlighted in Chapter 10 (on Obligations and deliverable obligations), are elaborated.

24.2 MECHANICS OF PHYSICAL SETTLEMENT

The settlement obligations of the parties to a transaction do not

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