ISDA®
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.
NEWS
RELEASE
For
Immediate Release Wednesday, February 07, 2007
For More Information, Please Contact:
Louise Marshall, ISDA New York, 212-901-6000, lmarshall@isda.org
ISDA
Welcomes Second Circuit’s Decision on Credit Derivatives
NEW YORK, Wednesday, February 07, 2007 – The International Swaps and Derivatives
Association (ISDA) said today that
it welcomed the decision of the United States Court
of Appeals for the Second Circuit to overturn a 2006 district court ruling
on a case between Aon Financial Products and Société Générale concerning a
credit default swap contract on the Republic of the Philippines.
According to
the Second Circuit opinion, the earlier lower court ruling had incorrectly
assumed an economic connection between two credit default swaps that Aon had
entered into separately with two counterparties, Société Générale and Bear
Stearns. The Second Circuit court upheld the distinct economics of the two
contracts in overturning the district court decision.
“The Second Circuit opinion sets forth a clear-sighted
appraisal of this case, upholding the principles of the ISDA documentation,” said Robert
Pickel, Executive Director and Chief Executive Officer, ISDA. “Legal certainty in the use of ISDA documentation enables efficient growth and reduces
risk in the credit default swaps business. The lower court ruling undermined
this legal certainty by misconstruing the contractual obligations.”
In May 2006,
ISDA supplied a Brief of Amicus
Curiae in support of Société Générale. The
brief was prepared by Cadwalader Wickersham & Taft and is available on
ISDA’s website.
Note to
Editors
The Second
Circuit Court found that the earlier lower court ruling had incorrectly assumed
an economic connection between trades that Aon had entered into separately
with
Société Générale and with Bear Stearns, where Aon was respectively
a buyer of protection on a Republic of Philippines bond and a seller of protection
on a surety bond issued by the Government Service Insurance System (GSIS),
an agency of the Philippine Government. Furthermore, the lower court determined
in error that Société Générale should make a payment to Aon on the Republic of Philippines contract by virtue of the fact
that GSIS had defaulted and therefore Aon owed payment to Bear Stearns.
About ISDA
ISDA, which represents participants in the privately negotiated
derivatives industry, is the largest global financial trade association, by
number of member firms. ISDA was
chartered in 1985, and today has over 750 member institutions from 54 countries on six continents. These members include
most of the world's major institutions that deal in privately negotiated derivatives,
as well as many of the businesses, governmental entities and other end users
that rely on over-the-counter derivatives to manage efficiently the financial
market risks inherent in their core economic activities.
Information about ISDA and its activities is available on the Association's
web site: www.isda.org.