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Revised ISDA® Credit Derivatives Definitions to Go Live in September
Practical Law Legal Update 0-556-5705 (Approx. 4 pages)
Revised ISDA® Credit Derivatives Definitions to Go Live in September
by Practical Law Finance
| Published on 05 Feb 2014 • International |
ISDA has announced that its revised credit derivatives definitions, the ISDA 2014 Credit Derivatives Definitions, will become effective in September 2014. These definitions apply to credit derivatives transactions such as credit default swaps (CDS).
On February 3, 2014, ISDA® announced that its 2014 ISDA Credit Derivatives Definitions (2014 CDDs) will go live on the September 2014 credit default swap (CDS) "roll" date. (CDS roll dates occur quarterly, including annually on or around September 20.) The 2014 CDDs will be a revised version of the 2003 ISDA Credit Derivatives Definitions (2003 CDDs). ISDA had previously announced that it was aiming for the 2014 CDDs to become effective on March 20, 2014, but is providing market participants more time to adjust, which in some cases involves technology and infrastructure adjustments. The final 2014 CDDs are expected to be published soon, however ISDA has provided access to a pre-publication draft.
Update: On February 21, 2014, ISDA announced publication of the 2014 CDDs. The 2014 ISDA CDDs are available at the ISDA bookstore for $175 for ISDA members and $350 for non-ISDA members.
ISDA originally announced the proposed amendments to the 2003 CDDs, which will become the 2014 CDDs, on July 15, 2013. The 2014 CDDs, like the 2003 CDDs, will contain the basic terms used in the documentation of most credit derivatives transactions, including CDS.
The proposed amendments include:
- A new credit event for instances in which a reference entity's debt is written down under a government-initiated bail-in. This credit event would apply only to new credit derivatives transactions entered into after the new definitions become effective.
- A new provision allowing bonds of a sovereign reference entity to be converted into other assets in an "asset package" upon the occurrence of a credit event to reduce difficulties in settlement of sovereign CDS. This credit event would apply only to new credit derivatives transactions entered into after the new definitions become effective.
- The introduction of standard reference obligations for frequently traded reference entities.
- Changes to the successor provisions of the 2003 CDDs.
- Amendments to the definitions of the following terms included in the 2003 CDDs:
- Restructuring Credit Event;
- Qualifying Guarantee;
- Bankruptcy Credit Event.
ISDA saw the need for a revision of the CDDs in light of the tectonic changes in the CDS market post-crisis. As a result of extensive regulation under Title VII of the Dodd-Frank Act, many commonly traded index CDS must now be executed on a registered exchange (DCM or SEF) and cleared by a DCO (see Legal Updates, Final Clearing Determination for CDS and Interest Rate Swaps Issued by CFTC and MAT Summary: CFTC Swap Exchange-trading Mandates and Effective Dates). The new definitions will account for this new CDS landscape and other major differences in CDS, most notably the auction process for reference obligations and other changes to sovereign CDS as a result of the Greek debt crisis.
For more information and a table summarizing the changes, with links to more detailed explanations, see ISDA's note on proposed changes to 2003 Credit Derivatives Definitions.
For general information on credit derivatives and the 2003 ISDA Credit Derivatives Definitions, see Practice Notes:
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this resource.