International Swaps and Derivatives Association
Discussion
This international finance stuff is a bit complicated!
"t is extremely unlikely that Greece will declare an all-out default on its sovereign debt and its government will probably, with IMF (Berlin: MXG1.BE - news) and EU support, agree some kind of “restructuring” deal.
Deciding whether this constitutes a default is the job of the International Swaps and Derivatives Association, the representative body of the derivatives market that designs the contracts under which product such as CDS are issued.
The confidentiality surrounding this process is extremely tight and law firms involved in the process will not discuss the issue, even on background."
source
Why the secrecy? Surely it would be better if it's all out in the open.
"t is extremely unlikely that Greece will declare an all-out default on its sovereign debt and its government will probably, with IMF (Berlin: MXG1.BE - news) and EU support, agree some kind of “restructuring” deal.
Deciding whether this constitutes a default is the job of the International Swaps and Derivatives Association, the representative body of the derivatives market that designs the contracts under which product such as CDS are issued.
The confidentiality surrounding this process is extremely tight and law firms involved in the process will not discuss the issue, even on background."
source
Why the secrecy? Surely it would be better if it's all out in the open.
Fittster said:
This international finance stuff is a bit complicated!
"t is extremely unlikely that Greece will declare an all-out default on its sovereign debt and its government will probably, with IMF (Berlin: MXG1.BE - news) and EU support, agree some kind of “restructuring” deal.
Deciding whether this constitutes a default is the job of the International Swaps and Derivatives Association, the representative body of the derivatives market that designs the contracts under which product such as CDS are issued.
The confidentiality surrounding this process is extremely tight and law firms involved in the process will not discuss the issue, even on background."
source
Why the secrecy? Surely it would be better if it's all out in the open.
This is why I disagree with Beardy that default probability is 100% over next couple of years"t is extremely unlikely that Greece will declare an all-out default on its sovereign debt and its government will probably, with IMF (Berlin: MXG1.BE - news) and EU support, agree some kind of “restructuring” deal.
Deciding whether this constitutes a default is the job of the International Swaps and Derivatives Association, the representative body of the derivatives market that designs the contracts under which product such as CDS are issued.
The confidentiality surrounding this process is extremely tight and law firms involved in the process will not discuss the issue, even on background."
source
Why the secrecy? Surely it would be better if it's all out in the open.
So this shady version of the pools panel have decided that Irish banks are bust.
"The International Swaps and Derivatives Association (ISDA) yesterday said that a "credit event" had occurred on Allied debt, meaning the bank has effectively defaulted on its debt, a situation the Irish government has gone to extreme lengths to avoid.
Credit default swaps (CDS) sold on Allied subordinated bonds and, crucially, its senior debt, have been activated by the decision of the ISDA determinations committee that decides whether a borrower has defaulted.
The decision by the committee, which is made up of 10 major banks, follows the announcement earlier this month by the Irish High Court of a "subordinated liabilities order" that changed the terms under which junior debt in Allied was originally sold, forcing holders of the bonds to accept an extension in the maturity of the debt to 2035.
Allied had already missed a coupon payment on its Lower Tier 2 debt. However, changes in the law enabled the bank to avoid being forced to be formally placed in default."
http://www.telegraph.co.uk/finance/newsbysector/ba...
"The International Swaps and Derivatives Association (ISDA) yesterday said that a "credit event" had occurred on Allied debt, meaning the bank has effectively defaulted on its debt, a situation the Irish government has gone to extreme lengths to avoid.
Credit default swaps (CDS) sold on Allied subordinated bonds and, crucially, its senior debt, have been activated by the decision of the ISDA determinations committee that decides whether a borrower has defaulted.
The decision by the committee, which is made up of 10 major banks, follows the announcement earlier this month by the Irish High Court of a "subordinated liabilities order" that changed the terms under which junior debt in Allied was originally sold, forcing holders of the bonds to accept an extension in the maturity of the debt to 2035.
Allied had already missed a coupon payment on its Lower Tier 2 debt. However, changes in the law enabled the bank to avoid being forced to be formally placed in default."
http://www.telegraph.co.uk/finance/newsbysector/ba...
fido said:
Nothing new. Ditto with Railtrack a couple of years ago.
Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
Don't organizations who buy CDS products employee very bright individuals to ensure that doesn't/shouldn't happen?Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
Fittster said:
fido said:
Nothing new. Ditto with Railtrack a couple of years ago.
Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
Don't organizations who buy CDS products employee very bright individuals to ensure that doesn't/shouldn't happen?Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
NoelWatson said:
Fittster said:
fido said:
Nothing new. Ditto with Railtrack a couple of years ago.
Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
Don't organizations who buy CDS products employee very bright individuals to ensure that doesn't/shouldn't happen?Even though the subsidiary defaulted, the parent company Railtrack Group plc did not go into administration, so holders of the 'wrong' CDS got diddly.
If you have bought a CDS product and it doesn't work surely you haven't paid for the right thing?
Fittster said:
So this shady version of the pools panel have decided that Irish banks are bust.
"The International Swaps and Derivatives Association (ISDA) yesterday said that a "credit event" had occurred on Allied debt, meaning the bank has effectively defaulted on its debt, a situation the Irish government has gone to extreme lengths to avoid.
Credit default swaps (CDS) sold on Allied subordinated bonds and, crucially, its senior debt, have been activated by the decision of the ISDA determinations committee that decides whether a borrower has defaulted.
The decision by the committee, which is made up of 10 major banks, follows the announcement earlier this month by the Irish High Court of a "subordinated liabilities order" that changed the terms under which junior debt in Allied was originally sold, forcing holders of the bonds to accept an extension in the maturity of the debt to 2035.
Allied had already missed a coupon payment on its Lower Tier 2 debt. However, changes in the law enabled the bank to avoid being forced to be formally placed in default."
http://www.telegraph.co.uk/finance/newsbysector/ba...
I'm not sure what's shady about it. Deciding if an event has occurred is a fundamental part of the CDS market and it has to be done properly. It makes sense for the body which decides the contact definitions to also carry this out, and it makes sense for this body to be made up of the market-making banks. It obviously done secretly in order to avoid debates (and lawsuits) over the result."The International Swaps and Derivatives Association (ISDA) yesterday said that a "credit event" had occurred on Allied debt, meaning the bank has effectively defaulted on its debt, a situation the Irish government has gone to extreme lengths to avoid.
Credit default swaps (CDS) sold on Allied subordinated bonds and, crucially, its senior debt, have been activated by the decision of the ISDA determinations committee that decides whether a borrower has defaulted.
The decision by the committee, which is made up of 10 major banks, follows the announcement earlier this month by the Irish High Court of a "subordinated liabilities order" that changed the terms under which junior debt in Allied was originally sold, forcing holders of the bonds to accept an extension in the maturity of the debt to 2035.
Allied had already missed a coupon payment on its Lower Tier 2 debt. However, changes in the law enabled the bank to avoid being forced to be formally placed in default."
http://www.telegraph.co.uk/finance/newsbysector/ba...
Fittster said:
Maybe I misunderstand Fido's port. If I buy debt in a subsidiary company and then insurance against the main company defaulting, then the subsidiary goes bust but the main company doesn't and hence my the insurance doesn't payout I'd be pretty nervous about explaining the situation to the boss.
If you have bought a CDS product and it doesn't work surely you haven't paid for the right thing?
The debt in the subsidiary company would tend to be more risky than debt in the parent. Similarly, the cost of protecting against default in the subsidiary would be more expensive than protecting against debt in the holding company.If you have bought a CDS product and it doesn't work surely you haven't paid for the right thing?
If you've taken the cheaper option and retained the 'basis risk' then it's your fault when the basis risk comes back to bite you....
Sidicks
Neil H said:
I'm not sure what's shady about it. Deciding if an event has occurred is a fundamental part of the CDS market and it has to be done properly. It makes sense for the body which decides the contact definitions to also carry this out, and it makes sense for this body to be made up of the market-making banks. It obviously done secretly in order to avoid debates (and lawsuits) over the result.
Oh the banks are deffo shady under market stress. I read "The Big Short" and was shocked to learn that under bi-lateral agreements the big names always found reason to (extra) demand collateral on OTC positions from customers but when the market went the other way, the systems at various banks were reportedly down and so the banks couldn't pay/return collateral to their customers. If the bank is the sole calculation agent then its officers might not always act honourably. ISDA acts for its members and not for customers when push comes to shove. Why would they do otherwise?FarleyRusk said:
Oh the banks are deffo shady under market stress. I read "The Big Short" and was shocked to learn that under bi-lateral agreements the big names always found reason to (extra) demand collateral on OTC positions from customers but when the market went the other way, the systems at various banks were reportedly down and so the banks couldn't pay/return collateral to their customers.
I'm not sure that reading a particular book makes you an expert....FarleyRusk said:
If the bank is the sole calculation agent then its officers might not always act honourably. ISDA acts for its members and not for customers when push comes to shove. Why would they do otherwise?
Why would a client not choose to appoint an independent calculation agent??Presumably to save costs in the short term......
Sidicks
sidicks said:
FarleyRusk said:
Oh the banks are deffo shady under market stress. I read "The Big Short" and was shocked to learn that under bi-lateral agreements the big names always found reason to (extra) demand collateral on OTC positions from customers but when the market went the other way, the systems at various banks were reportedly down and so the banks couldn't pay/return collateral to their customers.
I'm not sure that reading a particular book makes you an expert....http://www.guardian.co.uk/business/2011/jun/24/cre...
oh rly. Does this chap know what he is talking about?
oh rly. Does this chap know what he is talking about?
NoelWatson said:
http://www.guardian.co.uk/business/2011/jun/24/cre...
oh rly. Does this chap know what he is talking about?
Probably not. It does p5ss me off when people who don't work in the industry (moi, 5 years in Credit Derivs) and have derived their knowledge from Robert Peston blogs start explaining stuff they don't really know much about. Analagous to me explaining the innards of a F1 engine to some of the automtive experts on here - basically i wouldn't even attempt it.oh rly. Does this chap know what he is talking about?
sidicks said:
If you've taken the cheaper option and retained the 'basis risk' then it's your fault when the basis risk comes back to bite you....
Exactly, read the contract - and what defines trigger events.Edited by fido on Saturday 25th June 16:52
"There was dismay last week over speculation that the terms of the Greek bail-out deal, which will require investors to take a 50pc haircut on the face value of their holdings, would not result in the triggering of CDS contracts. The ISDA said it was not likely the deal would result in CDS claims being allowed."
http://www.telegraph.co.uk/finance/financialcrisis...
http://www.telegraph.co.uk/finance/financialcrisis...
From my point of view, having Greece carry out a "default-light", and not having the CDS pay out is criminal. These products were sold as insurance against default, and there should be no option of wriggling out of the deal on a technicality.
We've already alienated swathes of our customer base by having LIBOR diverge so much from funding costs, having similar shenanigans with CDS will make it very hard to argue that our business model is about risk hedging for corporates at a fair price.
We've already alienated swathes of our customer base by having LIBOR diverge so much from funding costs, having similar shenanigans with CDS will make it very hard to argue that our business model is about risk hedging for corporates at a fair price.
CDS will trigger as I have said in other threads...it's nice to see further up the thread that I was predicting default a few months ago though....though I think it was over a year ago to be precise 
Yet again the journo's have got this wrong.
The proposed exchange offer where people cash in their Greek government bonds for new much longer dated bonds for approximately half the value will not trigger default under ISDA rules because it is voluntary. However you are under no obligation to do so.....when the bonds people own become due the bondholders will then be able to trigger those default contracts as non payment is a trigger.
IMHO opinion there is no way on god's earth that we will get through this crisis without Greece triggering CDS.....this proposed debt exchange might not but that is only one chapter in the story.
So let's say I own some bonds that mature in December next year....the exhange offer will give me 50% of my investment or I wait til next December because I have insured my holding with CDS. The Greek government don't give me my money next December so I declare an event of default....ISDA rules on it (any ISDA member can ask ISDA to rule on it) and the CDS contract triggers. Job done.
Yet again the journo's have got this wrong.
The proposed exchange offer where people cash in their Greek government bonds for new much longer dated bonds for approximately half the value will not trigger default under ISDA rules because it is voluntary. However you are under no obligation to do so.....when the bonds people own become due the bondholders will then be able to trigger those default contracts as non payment is a trigger.
IMHO opinion there is no way on god's earth that we will get through this crisis without Greece triggering CDS.....this proposed debt exchange might not but that is only one chapter in the story.
So let's say I own some bonds that mature in December next year....the exhange offer will give me 50% of my investment or I wait til next December because I have insured my holding with CDS. The Greek government don't give me my money next December so I declare an event of default....ISDA rules on it (any ISDA member can ask ISDA to rule on it) and the CDS contract triggers. Job done.
NorthernBoy said:
Yes, you're right, all of us who trade these have overlooked this simple arbitrage. I recommend that you remortgage immediately, get all your friends and family to do likewise, and make a killing.
Good for you, seeing what everyone else on the planet missed.
There was no need for an arbitrage....just a simple short in the debt worked very well. It actually doesn't get any simpler. Good for you, seeing what everyone else on the planet missed.
Not claiming everyone else in the planet missed it...there's plenty that didn't but a lot more that did.
As you can see on this thread I was talking about it in May last year and refer to research that was in the market to that effect at the time.
http://www.pistonheads.com/gassing/topic.asp?h=0&a...
Certain people at the time thought I was talking out of my arse.....it would appear I wasn't.
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