Isda welcomes outcome of SG appeal

The International Swaps and Derivatives Association has publicly welcomed a decision by the US Second Circuit Court of Appeals, overturning a ruling that forced Société Générale to pay out on a contentious credit default swap (CDS) contract.

Isda had submitted an amicus brief to the court in May 2006 supporting the Paris-based bank. The CDS, which was referenced to the government of the Philippines, was purchased by Chicago-based Aon Financial in 1999. It was thought to be a hedge against protection on a loan guaranteed by a Filipino public body, which Aon Financial sold to Bear Stearns International.

The two contracts did not reference one another, but the US District Court for the Southern District of New York deemed them to be connected. In light of Aon Financial being forced to pay out on the CDS it had issued to Bear Stearns International, Société Générale was made to pay Aon Financial and its parent company $10 million in cash and legal fees – regardless of the physical nature of the disputed contract and its documentation.

In reversing the judgment, the Second Circuit Court looked at the legal specifications of each contract separately. Isda chief executive Robert Pickel praised the ruling, and said the lower court had undermined legal certainty in the CDS market by misconstruing the parties’ obligations.

(See: Isda weighs in on Societe Generale court ruling, Risk, June 2006.)

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here