Credit Default Swaps: The Vanilla Essence
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Economic sanctions: compliance challenges
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
29.1 INTRODUCTION
The fourth spotlight topic for discussion relates to sanctions compliance challenges posed by sanctions legislation, in the context of credit derivatives trading. Russia’s invasion of Ukraine on February 24, 2022, seen as the largest unprovoked aggression and breach of international law offensive in Europe since World War II, triggered heavy sanctions. These sanctions have been imposed in a ratcheted fashion by democratic nations11 These include the US, EU, UK, Canada, Japan, Singapore and Australia, Singapore, Taiwan and South Korea. through different policy regimes that have been implemented in an unsynchronised fashion, but overall, have largely been unified in their approach. Such sanctions in condemnation of the invasion (the “2022 Russian Sanctions”) are unparalleled. The events in Ukraine have brought home the complexities in managing sanctions compliance risk and executing de-risking strategies within a landscape of international business, where the threat of widening sanctions was increasing daily at the time of writing.
The chapter begins with an introduction to ISDA’s “Sanctions Paper”, which focused on the impact of sanctions legislation on the
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