The SRO will be the default Reference Obligation with respect to liquid CDS contracts between parties unless the parties specify a Reference Obligation with respect to the specific seniority level.
The SRO removes potential basis risk between CDS transactions that have the same Reference Entity but different Reference Obligations.
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On August 21, the International Swaps and Derivatives Association (ISDA) published the ISDA 2014 Credit Derivatives Definitions Protocol (the "Protocol").
The Rimon Global Alliance consists of highly skilled attorneys and other professionals whom our partners may call upon as independent contractors to our firm for their expertise, capabilities or economy in the service of our clients.
The Protocol will apply to certain (but not all) existing credit derivative transactions (“CDS”) and will also apply to certain CDS entered into in the year following the effective date, to allow parties to continue using their existing documentation as updated by the Protocol as they transition to the 2014 Credit Derivatives Definitions (the “2014 Definitions”).
Under the 2003 Definitions, a “Successor” to a Reference Entity was based on the percentage of Relevant Obligations assumed by the Successor following the identification of a "succession event." The 2014 Definitions replace the concept of a succession event with a "steps plan." The Steps Plan assesses individual transfers of debt by one or more entities in the aggregate to determine whether or not a successor needs to be named.
The 2014 Definitions also introduces a “Universal Successor,” that assumes all of the obligations of the original Reference Entity in circumstances where the Reference Entity has ceased to exist or is in the process of being dissolved.
Asset Package Delivery allows market participants to deliver assets resulting from the corresponding Deliverable Obligations that have been converted in connection with a Government Intervention or Restructuring Credit Event and those assets will also be used to determine the Final Price in an Auction.
In the case of financial institution debt, the 2014 Definitions permit the delivery of an asset package resulting from the exchange or conversion of "Prior Deliverable Obligations;" in the case of sovereign debt, the 2014 Definitions permit the delivery of an asset package based on one or more "Package Observable Bonds," a benchmark reference obligation of the Sovereign specified by ISDA that meets the deliverability criteria immediately prior to the Credit Event.