Credit Default Swaps: The Vanilla Essence
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Notices
Notices
Foreword
Preface
A credit default swap snapshot
Parties and key players
Documentation and standard trading conventions
Credit risk period, scheduled termination date and termination date
Fixed amounts, floating rate payer calculation amount and initial payment amount
Qualifying guarantee and qualifying affiliate guarantee
Reference obligation
Subordination and the senior non-preferred supplement
Outstanding principal balance and due and payable amount
Obligations and deliverable obligations
Credit event overview
Bankruptcy
Failure to pay
Repudiation/moratorium
Restructuring and redenomination
Governmental intervention and contingent convertible capital instruments
Successor determinations
Publicly available information and eligible information
Notices
Business day terms and timing rules
Event determination date and settlement methods
Auction settlement
Cash settlement
Physical settlement
Physical settlement fallback procedures
Orphaning
Fixed recovery transaction and reference obligation only trade
Novation and early termination
Economic sanctions: compliance challenges
Disclosures and regulations
Conclusion: at the ‘Exit Checkpoint’
Appendix
References
19.1 INTRODUCTION
This chapter concentrates on the administrative notification procedures under the 2014 ISDA Credit Derivatives Definitions (henceforth the “2014 Definitions”; see International Swaps and Derivatives Association Inc. 2014b). The discussion is focused primarily on credit event related notices, settlement-related notices and the successor notice. The importance of some of the key notices required to be delivered under a CDS and the risks relating to non-delivery of the relevant notices are highlighted. The descriptions, form and content requirements of these notices, and the prescribed deadlines for delivery of the relevant notices are discussed. Finally, the general notice provisions, including the rules that govern the effective date of the notices delivered under the 2014 Definitions, are addressed.
19.2 IMPORTANCE OF NOTICES AND RISKS OF NON-DELIVERY
During the life of a transaction, the parties to a transaction may be required to deliver one or more notices to the other party and/or the calculation agent. As the notice requirements can be intensive to administer, given the tight deadlines that need to be met for notices to be effective, market
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