2007 iTraxx® Europe Maximum Deliverable Amount Protocol (the "Protocol")

Capitalised terms used in this explanation have the meanings given to those terms in the iTraxx® Europe Tranched Transactions Standard Terms Supplement (published on September 20, 2006) (the "Standard Terms Supplement"), unless otherwise defined herein.

The purpose of the Protocol is to make certain amendments to the standard documentation for single tranche transactions that reference either Series 4 or Series 5 only of the iTraxx® Europe index (the Relevant Transactions). Many Relevant Transactions entered into after September 20, 2006 will have been documented incorporating the Standard Terms Supplement, in which case adherence to the Protocol will not affect such Relevant Transactions. However adherence to the Protocol would, subject to the wishes of the contracting parties, be appropriate for purposes of any Relevant Transaction that has been documented by reference to the iTraxx® Europe Tranched Transactions Standard Terms Supplement (published on 19th September, 2005).

The Protocol will make the following three amendments to the documentation of any Relevant Transaction in respect of which the Protocol is applicable:

  1. references to "Mark-it Partners Ltd." will be deemed amended to reference "Markit Group Limited";

  2. the concepts of "Equity Maximum Deliverable Amount" and "Equity Calculation Amount" will be deemed amended to refer to "Maximum Deliverable Amount" and "Relevant Calculation Amount" respectively and all references to "Modified Equity Delivery" will be deemed to be deleted; and

  3. in the absence of specific language to the contrary elsewhere in the confirmation to the Relevant Transaction, whether or not the Equity Maximum Deliverable Amount concept (renamed under the Protocol as the Maximum Deliverable Amount) is applicable to a Relevant Transaction will no longer be an election that the parties can make – the Maximum Deliverable Amount concept will automatically apply to all Relevant Transactions.

The Maximum Deliverable Amount concept works in the following manner:

Upon the occurrence of a Credit Event, Buyer will specify in the Notice of Physical Settlement the outstanding principal balance of each Selected Obligation that Buyer wishes to deliver to Seller in return for the Market Value Amount. The aggregate Currency Amount of all outstanding principal balances specified in respect of Selected Obligations in a Notice of Physical Settlement may, in certain circumstances, exceed the Reference Entity Notional Amount although may not, in such circumstances, exceed the Maximum Deliverable Amount. In circumstances where the Maximum Deliverable Amount exceeds the Reference Entity Notional Amount, and Buyer delivers Selected Obligations to Seller with an aggregate outstanding principal amount equal to the Maximum Deliverable Amount, Buyer will receive a Market Value Amount that is calculated by reference to the Maximum Deliverable Amount, not the Reference Entity Notional Amount. This counterbalances the possibility that Seller might provide an artificially high Quotation at the time the Final Price of each Selected Obligation is determined; since Seller is a Dealer for purposes of the determination of such Final Price(s) and the Valuation Method is Highest, there might otherwise be an incentive for Seller to provide an artificially high Quotation to artificially reduce the Loss Amount that is calculated with respect to the Reference Entity in respect of which the Credit Event has occurred, and consequently artificially reduce the related Cash Settlement Amount, if any, that is payable. This incentive is reduced because the Market Value Amount would also be calculated by reference to any artificially high Final Price that Seller has provided during in the valuation process, therefore Seller would be required to pay a higher Market Value Amount in respect of a larger number of Selected Obligations than it would otherwise have to. The fact that the Outstanding Swap Notional Amount would remain artificially inflated if an artificially high Final Price was used to determine the relevant Loss Amount is also taken into consideration in the determination of the Maximum Deliverable Amount. A larger Outstanding Swap Notional Amount will result in a larger Fixed Amount for any Fixed Rate Payer Calculation Period, therefore this factor will impact the size of the Maximum Deliverable Amount.

There is a $1,000.00 (USD) adherence fee required for ISDA members or non-ISDA members submitting Adherence Letters in connection with the Protocol which should be submitted with your adherence letter. Payment received after the closing date will be accepted but adherence letter(s) will not be posted on the ISDA website until this payment is received by ISDA.

The 2007 iTraxx® Europe Maximum Deliverable Amount Protocol is open to ISDA members and non-members. The Protocol will be open between July 16, 2007 and July 30, 2007.