Fixed recovery transaction and reference obligation only trade

Indra Rajaratnam


The second discussion topic concerns two product types that are contemplated under the terms of the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b): the fixed recovery transaction, and the reference obligation only trade. This chapter begins with a discussion on the nature of a fixed recovery transaction and describes the investor motivations for entering into such a transaction. The “Additional Provisions for Fixed Recovery CDS Transactions” (the “Fixed Recovery Provisions”), which set out a standardised framework for documenting a fixed recovery transaction, are also outlined. In this section, the salient provisions of the relevant provisions, including the changes made to the definition of “Cash Settlement Date” under the 2014 Definitions, are highlighted. The chapter then concludes with a brief overview of the key characteristics of a reference obligation only trade.


A fixed recovery transaction is a variant of the CDS, and is also referred to as a “binary” or “digital” swap. In this type of transaction, the recovery price or

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