Isda requires CDS reference obligation specification at trade date

The International Swaps and Derivatives Association has decided that confirmations should specify reference obligations as of the trade date for credit default swap (CDS) transactions.

The decision was made at a session of the Isda G6 credit derivatives market practice committee yesterday. The requirement should not prove contentious, as it is consistent with current documentation that makes reference obligation specification mandatory for cash-settled transactions and optional for physically settled transactions.

Isda’s decision formalises current market practice among credit derivatives dealers to stave off confirmation backlogs resulting from non-specification of reference obligations at the trade date.

The session also discussed credit derivatives documentation and market practice initiatives related to emerging market sovereigns, restructuring, financial guarantees, FAS 133 and settlement as included in the draft 2002 Isda ‘credit derivative definitions’ published earlier this month.

Isda invited market participants to provide comments on the draft until August 12 this year. The trade association then plans to hold a meeting before October at which a formal vote on all topics broached in the draft will be held.