Isda publishes protocol for new US LCDS

The International Swaps and Derivatives Association has published a protocol to roll old US loan credit default swap (LCDS) trades to the new industry standard, which was adopted in May.

Both members and non-members of Isda have until August 24 to submit a letter of adherence to the association. This will roll old US single-name LCDS trades to the May contract, and also incorporates a new clause for physical settlement published by the Loan Syndications and Trading Association in June.

The new US LCDS terms, published on May 22, also heralded the launch of CDS IndexCo’s LCDX index of North American LCDSs (see also: LCDX index debuts in the US). The documentation makes clear that if reference entities in the index default, single-name trades linked to them that are triggered at a similar time will be cash-settled via the same auction. Taking a ‘reference entity’ approach rather than a ‘reference obligation’ approach, the contract also triggers a search for substitute underlying loans automatically if they have been repaid or refinanced.

Isda is still working on documentation for trading in LCDX tranches, which one dealer said was taking longer than expected. The publication of an updated European single-name LCDS contract has also been delayed, but is expected by the end of the week (see also: New European single-name LCDS expected soon).

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