ISDA Statement on Settlement of a Monoline Credit Event

ISDA members have noted that, in the current financial environment, it is prudent for ISDA to ensure that if a credit event occurs in respect of a widely traded reference entity, ISDA and market participants are prepared to implement a settlement auction or other mechanism that will serve the credit default swap market’s needs. ISDA recognized early on that a credit event in respect of a monoline financial guaranty insurance company (a “Monoline”) would present unique settlement challenges. This note explains ISDA’s anticipated approach to settlement of a Monoline bankruptcy or failure to pay credit event. This note summarizes the outcome of a long period of discussion and consideration by ISDA and its members.

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Reconciliation and Resolution

The collateral Committee is making significant progress on a number of matters related to the credit market downturn. The Committee has been actively reviewing practitioner experience since the early stages of the credit crunch, and the current projects have evolved from this work. Collateral practitioners report that the process (and the assets posted) has performed as expected by protecting the interests of the secured party.

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ISDA Initiatives Key in Improving Operational Infrastructure

ISDA, jointly with industry participants, submitted a letter to a group of international regulators to highlight some of the significant efforts the Association is making in connection with ongoing commitments to strengthen the operational infrastructure for privately negotiated derivatives.

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