ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the 2008 Fannie Mae and Freddie Mac CDS Protocol (the “Fannie Mae and Freddie Mac 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 FANNIE MAE AND FREDDIE MAC PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE FANNIE MAE AND FREDDIE MAC PROTOCOL. ISDA ASSUMES NO RESPONSIBILITY FOR ANY USE TO WHICH ANY OF ITS DOCUMENTATION OR OTHER DOCUMENTATION MAY BE PUT.
This Frequently Asked Questions webpage is divided into three sections: (i) questions relating to the submission of Adherence Letters; (ii) questions relating to the election of an entity not to participate in the Fannie Mae and Freddie Mac CDS Protocol; and (iii) questions relating to the substance of the Fannie Mae and Freddie Mac CDS Protocol itself.
Adherence Letter Submission Process
When do I need to send in my Adherence Letter?
The Fannie Mae and Freddie Mac CDS Protocol is open between 9:00 a.m. New York Time on Monday September 29 and 5:00 p.m. New York Time on Thursday October 2, 2008. Any entity must email its Adherence Letter to ISDA by 5:00 p.m. New York Time on Thursday October 2, 2008, or it will not be able to participate in the Fannie Mae and Freddie Mac CDS Protocol.
How do I send in my Adherence Letter?
All Adherence Letters must be delivered by email to FannieFreddieProtocol@isda.org. In the email, you must submit both your conformed and executed copies of the Adherence Letter. Click here for a sample of a conformed letter. Click here for a sample of a signed 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?
A conformed copy of the Adherence Letter means that the name of the authorized signatory (for example, Patricia Smith) is typed rather than having Patricia Smith’s actual signature on the letter. ISDA only posts on its website the conformed copy of all Adherence Letters.
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?
An authorized signatory to the Adherence Letter is an individual who has the legal authority to bind the adhering institution.
What if I am an investment or asset manager – how do I complete the signature block?
If you are an investment or asset manager and act on behalf of multiple funds that have entered into covered transactions under the Fannie Mae and Freddie Mac CDS Protocol, you may adhere on behalf of all of those funds by indicating the following in the signature block: “Investment/Asset Manager, acting on behalf of the funds and accounts listed in the relevant Master Agreement between it and another Adhering Party” Click here for example. A separate Adherence Letter for each fund or account does not need to be submitted to ISDA. Further, no specific names of clients of the investment/asset manager will be publicly disclosed on the ISDA website in connection with the Fannie Mae and Freddie Mac Protocol.
As an alternative, an investment or asset manager may list the specific funds that are adhering to the Protocol, by indicating in the signature block: “Investment/Asset Manager, acting on behalf of the funds and accounts listed below”. Click here for example. Please note that in this case the names of those funds will be publicly disclosed on the ISDA website.
Whichever method is used, in order for Physical Settlement Requests to be calculated by Participating Bidders, each such investment/asset manager is required to provide a list of all funds and accounts that it acts on behalf of to each Participating Bidder that has (or whose affiliate has) entered into a Master Agreement with any of those funds or accounts. As provided in paragraph (1) of the Auction Methodology set out in Exhibit 3 of the Fannie Mae and Freddie Mac CDS Protocol, on the Business Day prior to the Auction Date, the Administrators (Markit and Creditex) will publish a list of the Participating Bidders on their respective websites. In addition, contact details will be available for the Participating Bidders through their Adherence Letters on the ISDA website.
Can I change the text of the Adherence Letter?
No. The Adherence Letter must be in the same format as the form letter published in the 2008 The Fannie Mae and Freddie Mac CDS Protocol. You may obtain a copy of the form Adherence Letter by visiting the ISDA website, www.isda.org and clicking on “2008 Fannie Mae and Freddie Mac CDS Protocol” and then clicking on “Form of Adherence Letter”.
Do I need to reference a DTCC number on the Adherence letter? What are the implications if I do not?
You are strongly encouraged to provide the DTCC number for operational efficiency, but you are not required to provide the number.
Does it cost any money to adhere to the Fannie Mae and Freddie Mac Protocol?
Entities Electing Not to Adhere to the Fannie Mae and Freddie Mac CDS Protocol
What happens if my institution or fund does not adhere to the Fannie Mae and Freddie Mac Protocol?
If your institution or fund elects not to participate in the Fannie Mae and Freddie Mac Protocol, then you must bilaterally settle each of your trade(s) with each of your counterparties as such trade(s) relate to Fannie Mae and Freddie Mac. You will not be able to take advantage of the auction mechanic and should contact your counterparty or counterparties immediately if you do not plan to participate in the Fannie Mae and Freddie Mac Protocol.
Scope of Transaction Coverage Relating to the Fannie Mae and Freddie Mac Protocol
Does adhering to the Fannie Mae and Freddie Mac Protocol affect my single name trades?
Yes. Single name trades will be part of the auction process provided for by the Fannie Mae and Freddie Mac Protocol. Thus, single name trades on Fannie Mae and Freddie Mac will be subject to the procedures set forth in the Protocol.
Does adhering to the Fannie Mae and Freddie Mac Protocol affect other credit derivative transactions?
Yes. In addition to single and index credit derivative transactions referencing Fannie Mae and Freddie Mac, the following transactions are also covered in the Fannie Mae and Freddie Mac Protocol: Constant Maturity Swap Transaction, a Principal Only Transaction, an Interest Only Transaction, First to Default Transaction, Nth to Default Transaction, Recovery Lock Transaction, Bespoke Portfolio Transaction (which term would include portfolio transactions relating to TRAC-X, JPMorgan HYDI and Tracers indexes), Single-Name Swaption and Portfolio Swaption.
What credit derivative transactions are not affected by adhering to the Fannie Mae and Freddie Mac Protocol?
Reference Obligation Only Transactions, Loan Only Transactions, Preferred CDS Transactions and Fixed Recovery Transactions are not covered under the Fannie Mae and Freddie Mac Protocol.
Who runs the auction?
The auction will be administered by Creditex and Markit and not by ISDA.
When is the auction?
The auction will take place on October 6, 2008. Details of the auction results will be posted at www.creditfixings.com.
Cash Settlement Date and Accruals
When is the Cash Settlement Date?
The Cash Settlement Date is expected to be October 15, 2008.
How are accruals calculated?
The Fixed Rate on the Fannie Mae and Freddie Mac Portion shall accrue to but exclude September 22, 2008 for purposes of the payment due on that date (for transactions maturing on September 20, 2008, the accrual is to and including September 20, 2008). However, a rebate of the Fixed Rate accrual on the Fannie Mae and Freddie Mac Portion for the period from and including September 9, 2008, to but excluding September 22, 2008 (or to and including September 20, 2008 in the case of transactions maturing on that day), will be added to the Cash Settlement Amount to be paid to Buyer on the Cash Settlement Date.