FAQ DOES NOT PURPORT AND SHOULD NOT BE CONSIDERED TO BE A GUIDE TO OR
EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH
THE 2005 CDS INDEX PROTOCOL. PARTIES SHOULD THEREFORE CONSULT WITH THEIR
LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING
THE 2005 CDS INDEX PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE
TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
Please note that capitalized terms used in this FAQ page are as defined
in either Section 6 of the 2005 CDS Index Protocol or in the related ISDA
Master Agreement or 2003 ISDA Credit Derivatives Definitions.
This FAQ page may be updated
over time. (The last update was on May 26, 2005.)
This FAQ is divided into
and Overview of 2005 CDS Index Protocol
What is the purpose
of the 2005 CDS Index Protocol?
The purpose of the Protocol is to offer parties to credit derivative transactions
relating to various indices, such as Dow Jones-CDX and TRAC-X, an efficient
way in which make certain amendments to certain Index Documentation. These
issues arise in relation to the bankruptcy of Collins & Aikman Products
Co., a U.S. company that filed for bankruptcy on May 17, 2005.
How does the 2005
CDS Index Protocol work?
The Protocol reflects an innovative procedure which allows for various
standardized amendments to be deemed to be made to the relevant ISDA Master
Agreement and Index Documentation relating to confirmations or master
confirmations in connection with documentation published by CDS IndexCo
LLC or in connection with a Covered TRAC-X Transaction. It builds on the
principle that parties may agree with one or more other parties that certain
terms and provisions will apply to their respective relationships (unless
and until they specifically agree otherwise).
The Protocol provides a
multilateral mechanism which enables multiple parties to agree that, in
respect of any Index Documentation between any two of them, various standardized
amendments will apply.
Market participants (“Adhering
Parties”) indicate their participation in the Protocol arrangement
by sending a letter (an “Adherence Letter”) to ISDA’s
office in New York or in London or by email to firstname.lastname@example.org.
The Adherence Letter allows the Adhering Party to specify that Annex 1
to the 2005 CDS Index Protocol, containing standardized amendments to
its Index Documentation, will apply with other Adhering Parties.
By submitting the Adherence
Letter, the Adhering Party agrees that the provisions of Annex 1 will
apply in respect of Covered Index Transactions with another Adhering Party
submitting an Adherence Letter.
The amendment and adherence
process, among other matters, is set out in the Protocol itself, which
is published on ISDA’s web site (www.isda.org),
along with a form of the Adherence Letter. For further detail on the adherence
process, please see the Protocol Mechanics section of this FAQ.
What documents are
covered by the 2005 CDS Index Protocol?
The following documents
- In the case of a Covered CDX Untranched
Transaction, a confirmation or master confirmation based on the form
published by CDS IndexCo LLC in October 2003 or September 2004;
- In the case of a Covered CDX Tranche
Transaction, a confirmation, master confirmation and/or standard terms
based on the form published by CDS IndexCo LLC in July 2004 or March
- In the case of a Covered TRAC-X Transaction,
a confirmation or master confirmation.
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Why should I consider
participating in the 2005 CDS Index Protocol?
The Protocol has a number of significant advantages. In summary:
- The amendments contemplated by Annex
1 are standardized and the result of widespread industry consultation.
- The multilateral procedure saves time
and expense that would otherwise be spent on bilateral negotiations
with individual counterparties.
- The Protocol is supported by legal
opinions under English and New York law.
For whom is the 2005
CDS Index Protocol designed?
The Protocol is designed for all types of participants in the OTC derivatives
markets, including (but not limited to) any bank, corporation, government,
investment firm, insurance company, pension fund and other fund entity,
partnership and private individual that has entered into Covered Index
Transactions with respect to Collins & Aikman Products Co. The Protocol
was not designed with any particular type of derivative user in mind and
in no way discriminates between different types of users.
Do I need to be an
ISDA member to participate in the 2005 CDS Index Protocol?
No. The Protocol is open equally to members of ISDA and non-members of
Is the 2005 CDS Index
Protocol in any way related to previous ISDA Protocols (e.g., the EMU
Protocol or the 2002 ISDA Master Agreement Protocol)?
No. This Protocol is separate and independent from each other ISDA Protocol.
Whether or not a party has adhered to any other ISDA Protocol is irrelevant
for purposes of this Protocol.
(if any) are there to participating in the 2005 CDS Index Protocol?
The issues relating to Covered Index Transactions in connection with Collins
& Aikman Products Co. could be addressed by way of individually negotiated
provisions or by incorporating relevant provisions of the Protocol by
reference. However, in either case, bilateral negotiations would be required
and these could be time consuming and therefore costly.
CDS Index Protocol Mechanics
Is ISDA providing
accompanying legal opinions on the 2005 CDS Index Protocol?
Yes. ISDA’s English and New York counsel, Allen & Overy, has
prepared legal opinions on the effectiveness of the Protocol arrangement
under New York and English law. Copies of these opinions are available
How can I check the
signing authority of other 2005 CDS Index Protocol Adherents?
For security reasons, Adherence Letters on ISDA’s web site will
have signatures conformed into type and signing authority information
will not be displayed. Any supporting documents delivered to ISDA will
not be made available (except in special cases). However, should parties
wish to take steps to ascertain signing authority, the posted Adherence
Letter will include a contact name and contact details.
Can I obtain copies
of supporting documents or hard copies of Adherence Letters?
Yes. If you wish to obtain hard copies of Adherence Letters, each Adherence
Letter posted on ISDA’s web site will include a contact name and
contact details for the person who can send such documents. In special
circumstances only (e.g., in litigation, when properly subpoenaed by a
court of law), ISDA can provide certified copies of the documents held.
Which party in a
corporate group must adhere?
Each legal entity that has entered into a Covered Index Transaction with
respect to Collins & Aikman Products Co. must adhere separately in
its own capacity if it wishes to adhere to the Protocol. The Protocol
does not contemplate adherence by a group of separate legal entities.
Can I use one Adherence
Letter for all my firms' affiliates?
No. A separate Adherence Letter must be submitted for each legal entity
adhering to the Protocol. This is to ensure that all Adherence Letters
are submitted in the same form and to preserve a straightforward mechanical
process of administration.
How long do I have
to participate in the 2005 CDS Index Protocol. Is there a deadline?
The Protocol will be open for adherence between Thursday, May 26 and Friday,
June 3, 2005.
Why is there a limited
adherence period for the 2005 CDS Index Protocol?
There is a limited adherence period to provide Adhering Parties (as well
as ISDA) with a measure of certainty and finality. The limited adherence
period should also encourage market participants to consider the issues
addressed by the Protocol sooner rather than later, thereby assisting
with the smooth and efficient functioning of the OTC derivatives markets.
How will I know who
has adhered to the 2005 CDS Index Protocol?
A list of Adhering Parties, updated at least twice every day during the
Protocol period, is displayed on ISDA’s web site.
Can I modify the
wording of the 2005 CDS Index Protocol or the substantive clauses?
No. Any changes to the standardized wording set out in the Protocol or
to the standard form Adherence Letter will be considered invalid and unenforceable.
Counterparties can, of course,
negotiate and agree to any changes bilaterally outside the scope of the
Protocol. The Protocol in no way inhibits freedom of contract whether
the parties have adhered to the Protocol or not. If parties to a Covered
Index Transaction do wish to vary the terms of the Protocol as they would
otherwise apply, Section 5(b) of the Protocol describes how they should
Can I revoke my
participation in the 2005 CDS Index Protocol?
Once an Adherence Letter has been accepted by ISDA, an Adhering
Party is bound by all amendments elected by way of the matching procedure
with other parties that have already adhered to the Protocol or, subject
to the discussion below, that adhere before the end of the Adherence Period.
However, an Adhering Party
may, at any time during the Adherence Period deliver to ISDA a further
notice specifying an earlier cut-off date in respect of its own adherence
in accordance with Section 5(c) of the 2005 CDS Index Protocol. The effect
of such a letter will be to withdraw adherence as of the future date specified.
Although amendments already made will not be revoked, any subsequent adherence
by one of the Adhering Party’s counterparties will be ineffective
in respect of a Covered Index Transaction between them.
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What is ISDA’s
role in the 2005 CDS Index Protocol?
ISDA acts, for certain purposes, as an agent for participating parties.
It will receive Adherence Letters and update the web site daily during
the Adherence Period. ISDA also publishes the Protocol and provides information
about it to interested parties.
What will ISDA do
with evidence of authority submitted to it?
ISDA will hold any evidence of authority in its files for safekeeping.
Copies of this evidence of authority will only be provided in special
circumstances, such as in litigation, when properly subpoenaed by a court
of law. Parties are encouraged to contact their counterparties directly
if they require such evidence for their files. Each Adhering Party will
provide in their Adherence Letter details of a person to contact regarding
How can I participate
in the 2005 CDS Index Protocol?
Market participants can participate by downloading all necessary information
from ISDA’s web site and then submitting a signed Adherence Letter
in the proper form (together with a conformed copy of the Adherence Letter)
to either ISDA’s New York or London office or by email to email@example.com.
Are parties required
to provide evidence of authority to ISDA?
No. Parties can provide evidence of authority to ISDA if they so choose,
but they are not required to do so.
What do I need to
do after sending in my Adherence Letter?
Adhering Parties will wish to monitor adherence by others and satisfy
themselves as to signing authority. They may also wish to negotiate with
How much does adherence
to the 2005 CDS Index Protocol cost?
There is no charge to adhere to the Protocol.
How can I get a copy
of the 2005 CDS Index Protocol and other relevant information?
Copies of the Protocol, the form of Adherence Letter and information about
ISDA’s role and other aspects of the Protocol are available on the
Association’s web site here.
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