ISDA BEGINS NEW PROTOCOL FOR CREDIT-DEFAULT SWAPS DOCUMENTATION

Posted April 8, 2009

NEW YORK – The International Swaps and Derivatives Association Inc. (ISDA) has implemented its 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol (‘Big Bang’ Protocol). Over 2,000 parties adhered to the Protocol, which closed on April 7. The protocol is the final step of “hardwiring,” the incorporation of auction settlement terms into standard CDS [credit-default swaps] documentation.

“The successful implementation of our Big Bang Protocol constitutes a major achievement for ISDA and for the industry,” says Robert Pickel, Executive Director and Chief Executive Officer, ISDA. “Hardwiring is central to the many improvements ISDA and the industry are making in the ongoing refinement of practices for the efficient, liquid and transparent conduct of the CDS business. In adapting a tactical solution, ISDA has helped develop a strategic direction for the industry.”

The new terms in the protocol include:

• Adding auction settlement as a settlement method eliminating the need for credit event protocols to cash settle CDS transactions.

• Makes binding determinations on issues such as whether a credit event has occurred, whether an auction will be held and whether an obligation is deliverable.

• Adds credit event and succession event “look back” provisions or backstop dates to CDS documentation, setting a standard effective date for CDS transactions, taking effect for legacy transactions on June 20, 2009.

“This is an excellent example of the entire industry pulling together with the regulatory community to benefit the soundness and integrity of the product,” says David Geen, General Counsel, ISDA. “ISDA extends its thanks to all industry participants, from buy-side and sell-side, who have worked hard to implement these changes to a strict timetable.”