With exactly one month left until the September 22 effective date of the International Swaps and Derivatives Association’s (ISDA) new 2014 Credit Derivatives Definitions, ISDA has published a protocol to assist in applying the new definitions to existing credit derivative transactions that are governed by the 2003 version of those definitions. By adhering to the protocol, a market participant is agreeing with all other adherents that its transactions will incorporate the new definitions in place of the old. Parties are not obligated to change the terms of their existing transactions, but may prefer to do so if they want to switch to the new definitions for future swaps and want to avoid the risk of having different terms for their old and new trades.The 2014 definitions provide enhancements, rather than radical changes, for the credit derivatives market. The most significant additions are a new credit event for government bail-ins and provisions for delivery of asset packages in settlements. There are also a number of other smaller changes designed to address practical issues that have come to light during credit events that have occurred since the 2009 big and small bangs in the credit derivatives market. Parties are still free to use the 2003 definitions, but must be careful to specify which version applies in new transactions.
A detailed FAQ about the 2014 definitions can be found here.
The terms of the protocol can be found here.