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Table Of Contents

Introduction
I. Overview of Credit Derivatives
A. Main types of Credit Derivatives
1. Credit Default Swaps
2. Collateralised Debt Obligations and Credit-Linked Notes
3. Total Return Swaps
4. Recovery Swaps
B. ISDA Documentation
C. Benefits of Credit Derivatives
D. Issues Associated with Credit Derivatives
II. Backlog of Confirmations
A. The Issue
B. Steps Taken to Address the Issue
C. Lessons Learned and Solutions for the Future
III. Assignments of Trades
. Assignments of trades are
IV. Settlement of Credit Derivatives
A. Conditions to Settlement
1. Credit Event Notice
2. Notice of Publicly Available Information
3. In Case of Physical Settlement: Notice of Physical Settlement
B. Physical Settlement
1. How It Works
2. Benefits of Physical Settlement
3. Issues
a) Determination of Deliverable Obligations
b) Operational Burden of Physical Settlement
c) Residual Exposure for the Seller of Protection
d) Monitoring of Offsetting Positions
e) Bonds Squeeze
f) Bonds Redemption
g) Issue of Bonds by a New Entity/Succession Issue
C. Cash Settlement
2. Benefits of Cash Settlement
D. The New Auction Protocol
1. Transactions Covered
4. The Auction Methodology
a) The “Preliminary” Auction
b) Main Auction
c) The Values Determined by the Auction
(1) Inside Market Midpoint
(2) Adjustment Amount
(3) Open Interest
(4) Final Price
d) Are the Trades Formed under the Auction “Physically Settled”?
5. Is the new Protocol the Panacea?
a) The Shift from Physical Settlement to Cash Settlement
b) The Auction System
c) Some Troubling Data
Conclusion
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Published by Chuck Thompson

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Published by: Chuck Thompson on Mar 10, 2011
Copyright:Attribution Non-commercial

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