ISDA Proposes to Amend Credit Derivatives Definitions Related to NTCEs
ISDA proposed amendments to the 2014 ISDA Credit Derivatives Definitions to address issues related to the narrowly tailored credit events (NTCEs). Feedback was requested by April 10, 2019. NTCEs are arrangements with corporations that cause a credit event leading to settlement of credit default swap (CDS) contracts while minimizing the impact on the corporation. ISDA also published the views of its Chief Executive Officer Scott O'Malia on the proposed amendments.
The proposal includes the following amendments:
- Proposed Amendment to "Failure to Pay" Definition and Publication of Guidance Memo. The definition of the Failure to Pay Credit Event (Section 4.5 of the Definitions) will be amended to add a requirement that the relevant payment failure result from or in a deterioration in creditworthiness or financial condition of the Reference Entity. This requirement would apply to corporate and financial Reference Entities but would not apply to sovereign Reference Entities. To provide additional clarity to apply the new test, a guidance memo will be published. The guidance memo will set out the purpose of this requirement and a non-exhaustive list of factors that should be taken into account in making a determination under the new test. The proposed amendment to the Failure to Pay definition and text of the guidance memo has been attached as Annex 1.
- Proposed Clarification to "Outstanding Principal Balance" Definition. Section 2.10 of the Definitions requires the Outstanding Principal Balance to be determined using the “Quantum of the Claim,” which is determined in accordance with the applicable law. Section 2.10 of the Definitions will be amended to add a clarification that the “applicable law” includes any bankruptcy or insolvency law that would apply to the Reference Entity if it were to enter bankruptcy or insolvency proceedings. The proposed amendment to the Outstanding Principal Balance Definition has been attached as Annex 2.
These proposals were discussed by the ISDA working group comprising members of the ISDA Credit Steering Committee and additional ISDA members active in the CDS market. Although the working group has not yet completed its work and, therefore, may have additional proposals, these amendments represent some of the most important aspects of the proposed changes agreed by the working group to date.
Related Links
Comment Due Date: April 10, 2019
Keywords: International, Banking, Securities, NTCE, Credit Default Swap, Credit Derivatives Definitions, Failure to Pay, Credit Risk, ISDA
Previous Article
EC to Amend CRD IV and CRR to Simplify Rules for Investment FirmsRelated Articles
|
News
HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.
April 16, 2019
WebPage
Regulatory News
|
|
News
FDIC Consults on Approach to Resolution Planning for IDIsFDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.
April 16, 2019
WebPage
Regulatory News
|
|
News
EP Resolution on Proposal for Sovereign Bond Backed SecuritiesThe European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).
April 16, 2019
WebPage
Regulatory News
|
|
News
PRA Seeks Input and Issues Specifications for Insurance Stress TestsPRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.
April 15, 2019
WebPage
Regulatory News
|
|
News
PRA Finalizes Policy on Approach to Managing Climate Change RisksPRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).
April 15, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: First Update for April 2019EBA published answers to nine questions under the Single Rulebook question and answer (Q&A) updates for this week.
April 12, 2019
WebPage
Regulatory News
|
|
News
EIOPA Statement on Application of Proportionality in SCR SupervisionEIOPA published a supervisory statement on the application of proportionality principle in the supervision of the Solvency Capital Requirement (SCR) calculated in accordance with the standard formula.
April 11, 2019
WebPage
Regulatory News
|
|
News
FED Updates Form and Supplemental Instructions for FR Y-9C ReportingFED updated the form and supplemental instructions for FR Y-9C reporting. FR Y-9C is used to collect data from domestic bank holding companies, savings and loan holding companies, U.S intermediate holding companies, and securities holding companies with total consolidated assets of USD 3 billion or more.
April 11, 2019
WebPage
Regulatory News
|
|
News
OSFI Finalizes Guidelines on Liquidity Adequacy and NSFR DisclosuresOSFI published the final Liquidity Adequacy Requirements (LAR) guideline and the net stable funding ratio (NSFR) disclosure requirements guideline.
April 11, 2019
WebPage
Regulatory News
|
