The International Swaps and Derivatives Association (ISDA) has announced the launch of a protocol created to facilitate settlement of credit derivative trades involving Quebecor World Inc., a Canadian printing company that filed for creditor protection under the Canadian Companies’ Creditors Arrangement Act on January 21, 2008.
The 2008 Quebecor CDS Protocol permits cash settlement of single-name, index, tranche and other credit derivative transactions. The Protocol offers market participants an efficient way to settle credit derivative trades referencing Quebecor. It enables parties to agree to settle their trades on a multilateral basis based on a final price established at auction. This approach to settlement brings considerable operational efficiencies, while also preserving a participant’s right to receive or deliver obligations if desired. Markit and Creditex will administer the auction, scheduled for February 19, 2008, which will determine the final price for Quebecor bonds.
"At a time when credit concerns are permeating the global financial markets, the ISDA mechanism reassures derivatives industry participants of a smooth and reliable settlement process," said Robert Pickel, ISDA’s ceo and executive director. "ISDA is committed to supporting the integrity of credit risk management practices and operational efficiency across privately negotiated derivatives.
While earlier ad hoc protocols enabled cash settlement only of index trades, this is the second time this settlement methodology has been applied to a broad range of credit derivative transactions. The mechanism was successfully implemented in the 2006 Dura CDS Protocol.
The Protocol is open to ISDA members and non-members alike. The adherence period for the Protocol runs until February 8, 2008.
The text of the Protocol and form of adherence letter, guidance on the mechanics of the Protocol, answers to frequently asked questions and details on adherents, are all available at http://www.isda.org/. Details on the auction are included in the Protocol.
