Market To Hash Out Plan To Cash Settle Single-Name CDS

Market participants are laying the groundwork for a solution to the cash settlement of single-name credit default swaps.

  • 20 Jan 2006
Email a colleague
Request a PDF

Market participants are laying the groundwork for a solution to the cash settlement of single-name credit default swaps. The International Swaps and Derivatives Association has scheduled a conference call with providers of market indices and interested parties for next Monday at 9 a.m. to discuss a cash settlement approach to both index and single-name CDS. The CDS protocols developed by ISDA to cash settle index CDS trades have so far excluded single-name CDS. But the success of these protocols has focused attention on how to develop documentation that would include the cash settlement of single-names CDS, according to market observers.

A spokeswoman for ISDA said the discussion next week will center on how to come up with a long-term solution, adding that ISDA's role in an agreement is not definite. "The call is to discuss the idea [of a cash settlement]. It is not a foregone conclusion that we will be involved in it," she said.

According to one source familiar with the ISDA protocols, there is strong market interest in finding a solution because of the volatility in the trading of bonds protected by single-name CDS. As illustrated in the Delphi Corp. bankruptcy, the non-inclusion of single-name CDS in the auto supplier's cash settlement protocol caused a short squeeze as investors scrambled to collect bonds to physically deliver for CDS contracts. The source said that a short squeeze that might happen after large credit events, such as a bankruptcy of General Motors, could push the price of bonds to par, making CDS protection on these securities worthless.

He added that there needs to be a uniform approach to cash settlement. "If you don't include single-name trades [in cash settlement] you will have a whole part of the market settling one way and a whole part of the market settling another way. People will be less willing to use CDS," he concluded.

So far, ISDA has not included single-name CDS in cash settlement protocols partly because of time constraints. In the case of Calpine Corp., for example, there were discussions about including single-name trades in the protocol, but the association decided against it because there was not enough time to include them in an agreement (CIN, 1/9). Buyers of CDS protection have only 30 business days to settle a trade after a credit event.

Nevertheless, observers believe that a solution to the cash settlement of single-name trades will be coming soon. One analyst at a bank covering the product said this will be the next biggest change in the CDS market. "Something will happen in single-name CDS contracts whereby an auction to cash settle single-name trades will be written into single-name contracts," he said.

  • 20 Jan 2006

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 22,118.13 61 9.00%
2 Barclays 20,987.41 55 8.54%
3 JPMorgan 17,406.75 53 7.08%
4 HSBC 16,333.52 48 6.64%
5 Goldman Sachs 15,454.74 49 6.29%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 10 Jan 2017
1 BNP Paribas 43,328.12 198 6.63%
2 JPMorgan 42,145.56 84 6.45%
3 HSBC 38,419.93 154 5.88%
4 UniCredit 37,616.85 180 5.75%
5 ING 30,163.46 163 4.61%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 10 Jan 2017
1 Emirates NBD PJSC 408.38 1 31.73%
2 SG Corporate & Investment Banking 166.67 1 12.95%
2 JPMorgan 166.67 1 12.95%
2 Credit Agricole CIB 166.67 1 12.95%
5 Morgan Stanley 59.80 1 4.65%