ISDA's "Small Bang" in a Nutshell: CDS Auctions Will Now Cover Restructuring Credit Events - Teigland-Hunt LLP Client Alert
- Deadline for Adherence: Friday, July 24th
As described in our alert of April 3, 2009, the International Swaps and Derivatives Association, Inc. (ISDA) published documentation in March that requires adhering market participants to settle certain credit default swap (CDS) transactions via market auctions. Parties that adhered to the “Big Bang” protocol at that time effectively agreed to settle existing CDS trades through the auction process whenever auctions are held in respect of certain credit events. Mandating the auction settlement method in this way has been perceived by regulators as critical to the proper functioning and integrity of the CDS market as a whole.
Because of the complexities involved in settling a “Restructuring” credit event by auction, ISDA deliberately excluded Restructuring events from the auction hardwiring process that took place in March. ISDA has since developed the necessary methodology for settling Restructuring events via auctions. As further summarized below, ISDA’s new “Small Bang” protocol will now hardwire the auction settlement method so that it can apply to existing CDS trades that are to be settled following the occurrence of Restructuring credit events.
Please see the Client Alert below for more details.
