The International Swaps and Derivatives Association (ISDA) today published the CDS Monoline Supplement Agreement.
The agreement incorporates by reference either one of the 2003 ISDA Monoline Provisions or the 2005 ISDA Monoline Supplement and is designed to ensure operational efficiency in confirming trades on a consistent market standard.
The provisions and supplement effect certain changes to the 2003 Credit Derivatives Definitions to provide, among other things, that obligations guaranteed by a monoline insurer under a qualifying financial guarantee insurance policy or a similar financial guarantee would be deliverable on the occurrence of a credit event on the insurer. By signing the agreement, parties will expedite the process of due diligence of contract terms that would be necessary in such an event. Since most market participants are both buyers and sellers of protection, this ‘good housekeeping’ exercise is to the benefit of the entire market.
Last week, ISDA announced its intention to gather and publish on its website a list of obligations that contributors believe would be deliverable obligations in the event of a credit event with respect to a monoline insurer. Publication of the agreement and the list is part of preparation for such an event should it occur and does not indicate that ISDA believes that such a credit event with respect to any particular entity or class of entities is imminent or likely.