ISDA is pleased to present the proposed Lock-Up Agreements and CDS – Proposed Auction Solution. “Lock-Up Agreements” are market-wide arrangements, broadly standardized and predominantly integrated with court sanctioned restructuring or bankruptcy processes. Numerous end users will sign material Lock-Up Agreements prior to the default or restructuring of a Reference Entity. However, the amount of debt that is covered by Lock-Up Agreements can have a disproportionate impact on CDS settlement due to squeezes, perceived squeezes and the interplay of artificial and arbitrary factors such as auction timing and imprecise lock-up data.

The CDS industry represented by ISDA’s Credit Steering Committee (CSC), aims to have a consistent and uniform approach in relation to Locked Up Debt and CDS Auctions that addresses the relevant issues. We note that this proposal is a framework and ISDA is seeking market feedback on the proposal. Additional detail will be developed if there is support for the proposal to ensure the proposal works operationally with respect to the Auctions.

ISDA would appreciate any feedback on the proposed solution by August 8th. Please email any feedback to Fred Quenzer, Senior Counsel, America, at fquenzer@isda.org.