ISDA® Modifies CDS Determinations Committee Rules | Practical Law

ISDA® Modifies CDS Determinations Committee Rules | Practical Law

ISDA has approved a series of changes to its credit derivatives determinations committees rules, which are scheduled to take effect in February 2016.

ISDA® Modifies CDS Determinations Committee Rules

Practical Law Legal Update w-001-3001 (Approx. 3 pages)

ISDA® Modifies CDS Determinations Committee Rules

by Practical Law Finance
Published on 12 Jan 2016 • USA (National/Federal)
ISDA has approved a series of changes to its credit derivatives determinations committees rules, which are scheduled to take effect in February 2016.
On January 8, 2016, the ISDA® Credit Derivatives Determination Committees (DCs) voted to implement a series of changes to the Credit Derivatives Determination Committees Rules (DC rules).
Originally created as part of the ISDA's "Big Bang Protocol" in April 2009, DCs are regional groups of market participants that include dealers (sell-side), brokers (buy-side) and other market participants (collectively, DC Members) who make certain determinations relating to credit default swaps (CDS). DCs determine whether or not a credit event has occurred with respect to a given reference entity. DCs also include non-voting clearinghouse (CCP) members.
The changes to the DC rules require member firms to adopt written policies and procedures that:
  • Ensure internal oversight and compliance with the requirements of the DC rules.
  • Establish a list of certain individuals (Decision-Makers) that are, at a minimum, either:
    • not involved in any business activity on behalf of a member firm with respect to hedging, lending, investing, advisory, or similar functions; or
    • explicitly guaranteed by the member firm to be independent from the business activities that the Decision-Maker would be acting on in its capacity as a Decision-Maker.
  • Explicitly contemplate the permissible treatment of material non-public information in the DC process by permitting Decision-Makers to share this information in the context of a hearing before the DC and in voting.
  • In the case of voting DC Members, establish policies governing the internal mechanisms by which votes are decided.
  • Explicitly contemplate the permissible treatment of individuals who elect to become a Decision-Maker, so long as they conduct themselves in a commercially reasonable manner, despite the individual knowing the economic position of a member firm or a relevant business activity that may be impacted by a DC decision.
Decision-Makers would be authorized to work on a member firm's behalf, by:
  • Attending DC meetings (for both DC and CCP members).
  • Deciding which member firm views will be presented or supported at DC meetings (for both DC and CCP members).
  • Voting on behalf of a member firm (for DC members only);
These changes are scheduled to be implemented by February 16, 2016. ISDA has published a helpful comparison document reflecting the changes which is available on the ISDA website.
For more information on DCs and ISDA's Big Bang, see Practice Note, Credit Derivatives: Overview (US): ISDA's Big Bang: CDS Determinations Committees.
"ISDA" and "ISDA SIMM" are registered trademarks 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.