2009 Ecuador CDS Protocol
The 2009 Ecuador CDS Protocol (the “Protocol”) relates to settlement issues concerning the Republic of Ecuador ("Ecuador"). Ecuador's government did not make a $30.6 million interest payment within the 30 day grace period that started after the country failed to make its payment for the original due date which was November 15. The purpose of the Protocol is to offer market participants an efficient way to address the settlement issues relating to credit derivative transactions referencing the Republic of Ecuador. The Protocol will offer institutions the ability to amend their documentation for various credit derivatives transactions in order to utilize an auction scheduled for January 14, 2009 to determine the final price for certain Ecuador bonds. Markit Group Limited and Creditex Securities Corp. will administer the auction.
The 2009 Ecuador CDS Protocol is open to ISDA members and non-members. The Protocol will be open between January 6, 2009 and January 12, 2009.
PLEASE NOTE: THIS PROTOCOL IS CLOSED.
|The following documents must be submitted via email to the ISDA office in New York in order to adhere to the 2009 Ecuador CDS Protocol:
ISDA will only accept email delivery of Adherence Letters. An Adhering Party is not required to send original Adherence Letters to the ISDA offices.
Click here for the form of Adherence Letter.
Please submit all Adherence Letters via email to EcuadorProtocol@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 2009 Ecuador 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.
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 2009 Ecuador CDS Protocol.
|ISDA has prepared this brief summary of frequently asked questions to assist in your consideration of the 2009 Ecuador CDS Protocol (the “Ecuador 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 ECUADOR PROTOCOL. PARTIES SHOULD CONSULT WITH THEIR LEGAL ADVISERS AND ANY OTHER ADVISER THEY DEEM APPROPRIATE PRIOR TO USING OR ADHERING TO THE ECUADOR 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 Ecuador Protocol; and (iii) questions relating to the substance of the Ecuador Protocol itself.
Adherence Letter Submission Process
How do I send in my Adherence Letter?
What is a conformed copy?
Who is an authorized signatory?
What if I am an investment or asset manager – how do I complete the signature block?
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 Ecuador 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?
Do I need to reference a DTCC number on the Adherence letter? What are the implications if I do not?
Does it cost any money to adhere to the Ecuador Protocol?
Entities Electing Not to Adhere to the Ecuador Protocol
Scope of Transaction Coverage Relating to the Ecuador Protocol
Does adhering to the Ecuador Protocol affect other credit derivative transactions?
What credit derivative transactions are not affected by adhering to the Ecuador Protocol?
When is the auction?
Physical Settlement through the Auction
If I want to deliver Deliverable Obligations in a currency other than USD, how is the FX calculated?
Cash Settlement Date and Accruals
How are accruals calculated?
For Ecuador, the "full coupon and rebate methodology" will apply. The day after the Common Event Determination Date is December 19, 2008, and the standard payment date is December 20, 2008 which was adjusted to December 22, 2008. "Full coupon" was payable on December 22, and 3 days' accrual will be rebated, EXCEPT for transactions that matured on December 20, for which 2 days' accrual will be rebated.
Under the "stub accrual" methodology, the Fixed Rate in respect of the relevant Reference Entity accrues from and including the previous payment date (or the Effective Date if it is the first accrual period) to and including the Common Event Determination Date and the resulting Fixed Amount in respect of the relevant Reference Entity is paid on the Cash Settlement Date. For tranche transactions, the "resulting Fixed Amount" is the accrual on the loss amount or recovery amount incurred on the relevant tranche (if any).
The "full coupon and rebate" methodology is generally applied when a standard CDS contract payment date (the "Affected Payment Date") occurs after the Event Determination Date, but before the auction settlement process is completed. This reflects the same economics as the "stub accrual" methodology (i.e. Fixed Rate accrues to and including the Common Event Determination Date), but the payment mechanics are different in order to facilitate settlement. Under the "full coupon and rebate" methodology, the Fixed Rate in respect of the relevant Reference Entity accrues from and including the previous payment date (or the Effective Date if it is the first accrual period) to but excluding the Affected Payment Date for purposes of the payment due on that date (unless the transaction matures on that date), i.e. "full coupon" is paid on that date. However, a rebate of the Fixed Rate accrual in respect of the relevant Reference Entity for the period from and including the calendar day after the Common Event Determination Date, to but excluding the Affected Payment Date, will be added to the Cash Settlement Amount to be paid to Buyer on the Cash Settlement Date. For tranche transactions, the "Fixed Rate accrual in respect of the relevant Reference Entity" is the accrual on the loss amount or recovery amount incurred on the relevant tranche (if any). For avoidance of doubt, in the "full coupon and rebate" the accrual for the "full coupon" is calculated on the pre-event total recovery and loss whereas the rebate is calculated using the event loss amount or recovery amount incurred. If the relevant transaction matures on the Affected Payment Date, the accrual is to and including the Affected Payment Date, then the Fixed Rate and the rebate will accrue to AND INCLUDING the Affected Payment Date. Finally, please note that if the Affected Payment Date falls on a non-business day, then the end of the accrual period for purposes of the Fixed Rate accrual and the rebate will adjust to the following business day, EXCEPT where the transaction matures on the Affected Payment Date, in which case it does NOT adjust, pursuant to Section 1.6 of the 2003 ISDA Credit Derivatives Definitions.
This information is summarized in the table below for the various payment date scenarios: