Credit default swap (CDS)

A contract between a credit protection seller (seller) and a credit protection buyer (buyer) where, in consideration of the buyer paying the seller an agreed fee, the seller agrees to pay out an agreed sum to the buyer if certain default events occur in respect of a third party's (or group of third parties') debt obligations.

For more on credit default swaps, see Practice note, Credit derivatives: overview (UK): Credit default swaps ( .

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