Credit derivatives - new documentation standards following the global financial crisis

July 2011

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Executive Summary

The article deals with the documentation of credit derivatives after the outbreak of the financial crisis. Firstly, the basic concept and the structuring of credit derivatives are outlined. The core theme of the article is the revision of the ISDA Credit Derivatives Definitions in 2009 which was carried out by the publication of the March 2009 Supplement and the July 2009 Supplement and also the Big Bang Protocol and the Small Bang Protocol.

The revision of the catalogue of definitions has practical implications on the documentation of credit default swaps and also of credit linked notes. This applies not only in case the credit derivatives are subject to English law but also if they are governed by German law. The main amendments are the implementation of Determinations Committees by ISDA, the creation of a new settlement method (Auction Settlement) and the potential retroactive effect of Credit Events and Succession Events ("look back approach"). It is the aim of the revision of the ISDA Credit Derivatives Definitions to make the credit derivatives market more transparent and trades easily fungible among themselves so that credit default swaps are a suitable instrument for central clearing.

Published in “WM - Zeitschrift für Wirtschafts- und Bankrecht, 2011, page 1109-1117