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Derivatives

Dura Set to Test CDS Protocol

Dura Operating Corp.'s bankruptcy will serve as the first test for the new credit-default swap protocol.

Dura Operating Corp.'s bankruptcy will serve as the first test for the new credit-default swap protocol. The International Swaps and Derivatives Association protocol is an effort to standardize settlement that grew out of problems caused by the past year's defaults. The adherence period for the Dura protocol will be from Nov 8-17. Auction of two bonds, administered by Creditex and Markit Group, will be on Nov 28.

"Dura has been trading like it was already in bankruptcy for some time now, this will really just serve as a test for the new off-the-shelf protocol," noted one credit trader. The protocol will apply to index trades, as with previous protocols, and also to bespoke tranches, single-name CDS and other vanilla products, according to dealers. It will provide for physical settlement of market orders and accommodate cash settlement, promoting transparency by publishing information about participants, prices, auction results, open interest and penalty bids.

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