Credit Default Swaps: The Vanilla Essence
First published:
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Documentation and standard trading conventions
Foreword
Preface
A credit default swap snapshot
Parties and key players
Documentation and standard trading conventions
Credit risk period, scheduled termination date and termination date
Fixed amounts, floating rate payer calculation amount and initial payment amount
Qualifying guarantee and qualifying affiliate guarantee
Reference obligation
Subordination and the senior non-preferred supplement
Outstanding principal balance and due and payable amount
Obligations and deliverable obligations
Credit event overview
Bankruptcy
Failure to pay
Repudiation/moratorium
Restructuring and redenomination
Governmental intervention and contingent convertible capital instruments
Successor determinations
Publicly available information and eligible information
Notices
Business day terms and timing rules
Event determination date and settlement methods
Auction settlement
Cash settlement
Physical settlement
Physical settlement fallback procedures
Orphaning
Fixed recovery transaction and reference obligation only trade
Novation and early termination
Economic sanctions: compliance challenges
Disclosures and regulations
Conclusion: at the ‘Exit Checkpoint’
Appendix
References
3.1 INTRODUCTION
This chapter features the documentation relevant to a CDS transaction in the context of an ISDA Master Agreement and its architecture. It also briefly discusses the interaction between the ISDA Master Agreement and the electronic confirmation platforms, and highlights credit concerns that could arise when a transaction is executed prior to the execution of an ISDA Master Agreement. An outline of the Matrix and the standard trading conventions relating to the relevant transaction types contemplated within the Matrix are also provided. In this respect, the features of a “Standard” transaction type are identified and, in the concluding section of the chapter, the considerations that need to be taken into account when modifications to the ISDA Master Agreement and deviations from the standard trading conventions are made are highlighted. Some of the additional provisions that are contemplated under the Matrix but not specifically covered in subsequent chapters of the book are also outlined.
3.2 MASTER AGREEMENT, SCHEDULE, CONFIRMATION AND CREDIT SUPPORT ARRANGEMENTS
The CDS transaction is typically documented using standard derivative documentation published
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