The International Swaps and Derivatives Association (ISDA) is preparing to open what it is referring to as the "Big Bang Protocol" for hard-wiring an auction settlement procedure on credit default swaps (CDS) on March 12. The Protocol would be open for adherence through April 7. Changes to the documentation covered by the Protocol would take effect upon closure of the Protocol. The 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol is a mechanism for market participants to incorporate the ISDA Credit Derivatives Determinations Committees and Auction Settlement Supplement to the 2003 ISDA Credit Derivatives Definitions (the 2009 Supplement) into agreements and covered CDS transactions entered into prior to its implementation or subsequently, but that do not specifically incorporate the 2009 supplement. It is expected that a market participant who adheres to the protocol will also incorporate the 2009 Supplement into any new agreements it enters into even with non-adherents. In addition to implementing a uniform and binding mechanism through Credit Derivative Determinations Committees for determining when Credit Events and Succession Events have occurred in covered CDS transactions, for making other determinations relevant to the credit derivatives market as a whole and enabling market participants to settle covered CDS transactions based on an auction final price, the 2009 Supplement includes some changes in terms that are not directly connected to the auction settlement process. These include the introduction of a Credit Event Backstop Date with a 60-day look-back period and a Succession Event Backstop Date with a 90-day look-back period, meaning that unlike previously, it will now be possible for a credit event or succession event to have occurred prior to the trade date of a transaction, and changes to the rules regarding setting of foreign exchange rates when the deliverable obligation is in a different currency from the settlement currency. The changes to the definitions in the 2009 Supplement will now place currency hedging risk squarely on the CDS buyer. Changes have also been made to make it easier to deliver loans as the deliverable obligation, if they are the cheapest to deliver.
http://www.isda.org/ (See “CDS Auction Hardwiring.”)