Credit Default Swaps: The Vanilla Essence
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Event determination date and settlement methods
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
21.1 INTRODUCTION
Having explored the requirements relating to credit events and successor determinations, this section of the book features the preconditions to settlement and defines the characteristics of the various settlement methods. This chapter focuses on the definition of an “event determination date”. It begins with a brief discussion on the significance of an event determination date in the context of settlement and outlines the distinction between a non-standard event determination date and a standard event determination date. The chapter also examines each provision under the terms of the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b) that gives rise to the occurrence of an event determination date and evaluates the requirements of the relevant provisions for a “DC Triggered Event Determination Date”, a “DC and Party Triggered Event Determination Date” and a “Party Triggered Event Determination Date” to occur. The considerations that are relevant to decisions on whether to bilaterally trigger a credit event are also highlighted. The events that prevent an event
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