CDS Works!

At a time when global punditry has tried to scapegoat the credit default swaps (CDS) industry for the woes of the financial markets, ISDA CEO Robert Pickel, has defended the products and the industry framework, while also addressing some of the misperceptions about CDS. In his interactions with regulators, legislators and media, Mr Pickel has emphasized that the recent series of auctions for settlements on CDS referencing Tembec, Fannie Mae, Freddie Mac and Lehman Brothers all proceeded smoothly, with trades settling in an orderly fashion. “This demonstrates that the industry infrastructure for CDS clearly works,” said Mr. Pickel. “ISDA and its members have developed a robust legal and operational framework that governs and guides industry participants through defaults and credit events, and that includes well-established procedures for evaluating, netting and settling outstanding trades. Recent developments in the financial markets underscore the value of the industry’s collective efforts.”

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CCSTs

Concerns regarding the legal and accounting treatment of Contingent Credit Spread Transactions (CCSTs) led to a change in the approach to portfolio compression.

Thirteen institutions, which originally committed to participate in portfolio compression, agreed that the new solution does not need new products, like the CCST.

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Documentation

On August 22, ISDA published the 2008 AEJ Master Equity Confirmation Agreement containing the (i) EFS Annex, which documents cashsettled equity finance share swaps, (ii) Multiple Exchange Index Annex and (iii) Open Market Annex OMISO, which documents cash and physically-settled European and American style index and share options.

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