CREDIT DEFAULT SWAPS
Small Bang Protocol implements
Auction Settlement following Restructuring
In March of this year, ISDA launched the Big Bang Protocol, specifying standard auction
settlement procedures and related terms applicable to credit default swaps transactions.
The fundamental components of the auction supplement included standard auction
settlement procedures, the creation of Credit Event and Succession Event look back
periods, and the establishment of Determinations Committees to make binding
determinations with respect to specified conditions and events. More than 2,000 parties
have adhered to the Big Bang, and it is widely considered to be a pivotal step forward in
derivatives standardization.
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COMMENT
Standardization with Customization
In recent weeks, European and American
officials have both called for more regulation
of derivatives operations, potentially leading
to new legislation later in the year. The
EC Communication of July 3 addressed
issues such as the use of clearinghouses
for OTC derivative trades, shifting trades
to exchanges, and the creation of a data
warehouse to further raise the transparency
of trades. ISDA, of course, looks forward to
discussing the ideas in the Communication
with the European Commission, and other
EU and national regulators. We strongly
support a number of the Commission’s
goals, including increased transparency.
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OPERATIONS
Governance
ISDA was asked to devise a governance structure for activities in the post-trade arena,
recently published on our website. It consists of four layers as follows:
- Level 1 is the ISDA Industry Governance Committee made up of Board members,
OMG Chairs, Product Steering Committee chairs and MFA/AMG nominees. This
is the senior business grouping that directs the overall agenda in the post-trade
space;
- Level 2 are the OMG and the individual Product Steering Committees, comprised
of business people;
- Asset class-specifi c operations Implementation Groups are at Level 3;
- Tactical / detail-driven Working Groups are at Level 4.
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