Through hardwiring, ISDA is incorporating into its standard documentation the auction settlement of contracts after a default or other credit event on a company referenced in credit default swap transactions.
This is implemented by way of a supplement to the 2003 ISDA Credit Derivatives Definitions. The Auction Supplement amends the ISDA CDS Definitions to incorporate the CDS settlement auction terms that have to date been included in the auction protocols. It also includes provision for the ISDA Determinations Committee, which going forward will make binding determinations for issues such as whether a Credit Event has occurred; whether an auction will be held; and whether a particular obligation is deliverable.
The amendments made by the Auction Supplement apply to transactions entered into going forward. ISDA has also published a Protocol to facilitate the amendment of existing transactions to reflect the new terms.
The Protocol opens for adherence on March 12, 2009 and closes on April 7, 2009. In accordance with paragraph 2(e) of the Protocol, there will be a Subsequent Adherence Period for the Protocol, which will open on July 14, 2009 and close on July 24, 2009. The Subsequent Implementation Date (as defined in paragraph 2(e)(ii) of the Protocol) will be July 27, 2009. Parties may only adhere to the Protocol during the Subsequent Adherence Period by adhering to the 2009 ISDA Credit Derivatives Determinations Committees, Auction Settlement and Restructuring CDS Protocol (the "Small Bang Protocol"). Please see the relevant webpages relating to the Small Bang Protocol for details.
Determinations Committee amendments to and interpretations of the Big Bang Protocol and Small Bang Protocol
Sign up to the Big-Bang Protocol
A list of Frequently Asked Questions about the CDS changes is available here.
ISDA also hosted a market-wide conference call on March 3 to assist in market participants' review of the draft documents made available to the market at that time and to discuss implementation timing. A copy of the slide presentation used for the call is available here. A recording of the call is available here for those market participants that were unable to attend the call in person. You may need Windows Media Player to access this recording.
A further market education call was held on Friday 13 March 2009. A copy of the slide presentation that was used on the call is available here.
To the extent that a market participant has any question that has not been addressed either in the FAQs on this website or on the market calls, they are welcome to raise such a question with ISDA. Any such question should be sent to firstname.lastname@example.org.
Market participants may also find the Symposia run by ISDA on "The New CDS Landscape - Auction Hardwiring and Market Practice Changes" useful. This Symposium will describe in more detail the key changes effected by the Auction Supplement and the Auction Supplement Protocol and will highlight the major market practice changes. Please click here for more details.
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