2008 Lehman CDS Protocol

The 2008 Lehman CDS Protocol (the “Protocol”) relates to settlement issues concerning Lehman Brothers Holdings Inc. ("Lehman"), that filed for Chapter 11 Bankruptcy Protection on September 15, 2008. The purpose of the Protocol is to offer market participants an efficient way to address the settlement issues relating to credit derivative transactions referencing Lehman. The Protocol will offer institutions the ability to amend their documentation for various credit derivatives transactions in order to utilize an auction scheduled for October 10, 2008 to determine the final price for certain Lehman obligations. Markit Group Limited and Creditex Securities Corp. will administer the auction.

The 2008 Lehman CDS Protocol is open to ISDA members and non-members. The Protocol will be open between October 6, 2008 and October 8, 2008.


The following documents must be submitted via email to the ISDA office in New York in order to adhere to the  2008 Lehman CDS Protocol:

  • One signed copy of the Adherence Letter, providing information on the contact person at the Adhering Party.
  • One conformed copy of the Adherence Letter. A conformed copy is an exact copy of the signed letter with the name of the person signing the letter typed on the signature line. A signature should not appear on the conformed copy of the letter.  Click here for example of conformed copy.

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 Lehmanprotocol@isda.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.

You are not required to send your original Adherence Letter(s) by mail to ISDA.

No other documents are required in order to adhere to the 2008 Lehman CDS 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, October 6, 2008.

Email address for Delivery of Adherence Letters:

Policy Regarding Conformed Copies
A signed copy and a conformed copy of an Adherence Letter must be received in order for ISDA to list a party as having adhered to the 2008 Lehman CDS Protocol.

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 2008 Lehman CDS Protocol.

ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the 2008 Lehman CDS Protocol (the “Lehman Protocol”).


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 Lehman CDS Protocol; and (iii) questions relating to the substance of the Lehman CDS Protocol itself.

Adherence Letter Submission Process
When do I need to send in my Adherence Letter? 
The Lehman CDS Protocol is open between 9:00 a.m. New York Time on Monday October 6, and 5:00 p.m. New York Time on Wednesday, October 8, 2008. Any entity must email its Adherence Letter to ISDA by 5:00 p.m. New York Time on Wednesday, October 8, 2008, or it will not be able to participate in the Lehman CDS Protocol.

How do I send in my Adherence Letter?
All Adherence Letters must be delivered by email to Lehmanprotocol@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 Lehman 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 Lehman 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 Lehman 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 Lehman CDS Protocol. You may obtain a copy of the form Adherence Letter by visiting the ISDA website, www.isda.org and clicking on “2008 Lehman 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 Lehman Protocol? 

Entities Electing Not to Adhere to the Lehman CDS Protocol
What happens if my institution or fund does not adhere to the Lehman Protocol?
If your institution or fund elects not to participate in the Lehman Protocol, then you must bilaterally settle each of your trade(s) with each of your counterparties as such trade(s) relate to Lehman. 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 Lehman Protocol.

Scope of Transaction Coverage Relating to the Lehman Protocol
Does adhering to the Lehman Protocol affect my single name trades?
Yes. Single name trades will be part of the auction process provided for by the Lehman Protocol. Thus, single name trades on Lehman will be subject to the procedures set forth in the Protocol.

Does adhering to the Lehman Protocol affect other credit derivative transactions?
Yes. In addition to single and index credit derivative transactions referencing Lehman, the following transactions are also covered in the Lehman 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 Lehman Protocol?
Reference Obligation Only Transactions, Loan Only Transactions, Preferred CDS Transactions and Fixed Recovery Transactions are not covered under the Lehman 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 10, 2008. Details of the auction results will be posted at www.creditfixings.com.

Physical Settlement through the Auction
I want to physically settle through the auction. What do I have to do?
Parties who wish to deliver or receive Deliverable Obligations may place a Physical Settlement Request with a Participating Bidder. A Physical Settlement Request is an order to sell or buy Deliverable Obligations at the Final Price. There is no specific form for submitting a Physical Settlement Request. Parties wishing to submit a Physical Settlement Request should contact their dealer who is acting as a Participating Bidder to find out how their Physical Settlement Request should be submitted. Following the auction, parties who submitted a Physical Settlement Sell Request must send a Notice of Physical Settlement to the relevant Participating Bidder, specifying which Deliverable Obligations they will deliver. A form of the Notice of Physical Settlement is contained as an exhibit in the Protocol document. The deadline for sending this notice is specified as the "Notice of Physical Settlement Date" in the Protocol.

If I want to deliver Deliverable Obligations in a currency other than USD, how is the FX calculated?
All Physical Settlement Requests and Limit Order Submissions are denominated in USD, however for trades generated by the matching of these orders, Deliverable Obligations denominated in certain other currencies may be delivered. In this case, the FX rate used to calculate how much of the non-USD Deliverable Obligation may be delivered is determined by the Calculation Agent using the Federal Reserve Bank of New York 10:00 a.m. (New York time) mid-point rate as displayed on Reuters Page FEDSPOT on the date the Notice of Physical Settlement is effective (or, if the Notice of Physical Settlement is changed on or prior to the Physical Settlement Date, the date notice of the last such change is effective), or in such other commercially reasonable manner as it shall determine after consultation with the parties.

Cash Settlement Date and Accruals
When is the Cash Settlement Date?
The Cash Settlement Date is expected to be October 21, 2008.

How are accruals calculated?
The Fixed Rate on the Lehman 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 Lehman Portion for the period from and including September 16, 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.