Isda proposes fix for ‘manufactured defaults’

Failure-to-pay must be linked to a deterioration in creditworthiness to trigger CDS payouts

Patching up the CDS market
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The International Swaps and Derivatives Association will introduce a new causation test to determine whether a failure-to-pay will trigger payouts on credit default swaps.

The move is intended to stamp out so-called manufactured defaults and trigger-to-finance deals, which have drawn the ire of global regulators and threatened to undermine the credibility of the CDS market.

“We are proposing a new requirement that [a failure to pay event] needs to result from or in a deterioration in

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