2007 iTraxx® Europe Maximum Deliverable Amount Protocol
2007 iTraxx® Europe Maximum Deliverable Amount Protocol (the "Protocol")
Capitalised terms used in this explanation have the meanings given to those terms in the iTraxx® Europe Tranched Transactions Standard Terms Supplement (published on September 20, 2006) (the "Standard Terms Supplement"), unless otherwise defined herein.
The purpose of the Protocol is to make certain amendments to the standard documentation for single tranche transactions that reference either Series 4 or Series 5 only of the iTraxx® Europe index (the Relevant Transactions). Many Relevant Transactions entered into after September 20, 2006 will have been documented incorporating the Standard Terms Supplement, in which case adherence to the Protocol will not affect such Relevant Transactions. However adherence to the Protocol would, subject to the wishes of the contracting parties, be appropriate for purposes of any Relevant Transaction that has been documented by reference to the iTraxx® Europe Tranched Transactions Standard Terms Supplement (published on 19th September, 2005).
The Protocol will make the following three amendments to the documentation of any Relevant Transaction in respect of which the Protocol is applicable:
The Maximum Deliverable Amount concept works in the following manner:
Upon the occurrence of a Credit Event, Buyer will specify in the Notice of Physical Settlement the outstanding principal balance of each Selected Obligation that Buyer wishes to deliver to Seller in return for the Market Value Amount. The aggregate Currency Amount of all outstanding principal balances specified in respect of Selected Obligations in a Notice of Physical Settlement may, in certain circumstances, exceed the Reference Entity Notional Amount although may not, in such circumstances, exceed the Maximum Deliverable Amount. In circumstances where the Maximum Deliverable Amount exceeds the Reference Entity Notional Amount, and Buyer delivers Selected Obligations to Seller with an aggregate outstanding principal amount equal to the Maximum Deliverable Amount, Buyer will receive a Market Value Amount that is calculated by reference to the Maximum Deliverable Amount, not the Reference Entity Notional Amount. This counterbalances the possibility that Seller might provide an artificially high Quotation at the time the Final Price of each Selected Obligation is determined; since Seller is a Dealer for purposes of the determination of such Final Price(s) and the Valuation Method is Highest, there might otherwise be an incentive for Seller to provide an artificially high Quotation to artificially reduce the Loss Amount that is calculated with respect to the Reference Entity in respect of which the Credit Event has occurred, and consequently artificially reduce the related Cash Settlement Amount, if any, that is payable. This incentive is reduced because the Market Value Amount would also be calculated by reference to any artificially high Final Price that Seller has provided during in the valuation process, therefore Seller would be required to pay a higher Market Value Amount in respect of a larger number of Selected Obligations than it would otherwise have to. The fact that the Outstanding Swap Notional Amount would remain artificially inflated if an artificially high Final Price was used to determine the relevant Loss Amount is also taken into consideration in the determination of the Maximum Deliverable Amount. A larger Outstanding Swap Notional Amount will result in a larger Fixed Amount for any Fixed Rate Payer Calculation Period, therefore this factor will impact the size of the Maximum Deliverable Amount.
There is a $1,000.00 (USD) adherence fee required for ISDA members or non-ISDA members submitting Adherence Letters in connection with the Protocol which should be submitted with your adherence letter. Payment received after the closing date will be accepted but adherence letter(s) will not be posted on the ISDA website until this payment is received by ISDA.
The 2007 iTraxx® Europe Maximum Deliverable Amount Protocol is open to ISDA members and non-members. The Protocol will be open between July 16, 2007 and July 30, 2007.
PLEASE NOTE: THIS PROTOCOL IS CLOSED.
The following documents must be submitted to the ISDA office in New York in order to adhere to the 2007 iTraxx® Europe Maximum Deliverable Amount Protocol:
(Please note that all three items above are required by the adhering entity. Adherence letters received without payment prior to the closing date will only be posted on the website after payment is received)
ISDA will only accept email delivery of Adherence Letters. An Adhering Party is not required to send original Adherence Letters to the ISDA offices.
Please submit all Adherence Letters via email to firstname.lastname@example.org. It is critical that both a scanned, signed Adherence Letter, as well as a scanned, conformed Adherence Letter is submitted. Entities will not be deemed to have adhered to the Protocol until both the signed and conformed Adherence Letters are submitted by email in accordance with the Adherence Period, as well as receipt of the applicable fee.
No other documents are required in order to adhere to the 2007 iTraxx® Europe Maximum Deliverable Amount Protocol. Supporting documentation, such as board resolutions or a list of authorized signatures, can be provided and will be held in safekeeping by ISDA, but it is not necessary to submit such documents in order to adhere to the Protocol. Access to supporting documentation will only be provided if requested in writing.
The Protocol will open for adherence on Monday, July 16, 2007.
Email address for Delivery of Adherence Letters:
Policy Regarding Conformed Copies
The most common problem experienced in the adherence process for prior Protocols was the failure to include a conformed copy of the Adherence Letter. We remind parties that a conformed copy, together with a signed copy, must be submitted to ISDA in connection with adherence to the 2007 iTraxx® Europe Maximum Deliverable Amount Protocol.
|Frequently Asked Questions|
ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the 2007 iTraxx® Europe Maximum Deliverable Amount Protocol (the “Protocol”).
THIS FREQUENTLY ASKED QUESTIONS DOES NOT PURPORT TO BE AND SHOULD NOT BE CONSIDERED A GUIDE TO OR AN EXPLANATION OF ALL RELEVANT ISSUES OR CONSIDERATIONS IN CONNECTION WITH THE PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
Adherence Letter Submission Process
How do I send in my Adherence Letter?
The Adherence Letter(s) should be on your institution’s letterhead. Nothing in the form Adherence Letter available on ISDA’s website may be changed with the exception of completing the details of your institutional name, date and signature block.
You are not required to send your original Adherence Letter(s) by mail to ISDA.
What is a conformed copy?
You must also submit an executed, or signed, copy of the Adherence Letter in addition to the conformed copy of the Adherence Letter. ISDA keeps the executed copy of the Adherence Letter for its files and does not share the executed copy with anyone else.
Who is an authorized signatory?
What if I am an investment or asset manager – how do I complete the signature block?
Can I change the text of the Adherence Letter?
Does it cost any money to adhere to the Protocol?