ISDA aims to complete hardwiring process by mid-March

By Angela McDaniels

Tacoma, Wash., Dec. 30 - The International Swaps and Derivatives Association, Inc. said the incorporation of the corporate default swap settlement auctions into the 2003 ISDA Credit Derivatives Definitions - the so-called hardwiring process - will be completed by mid-March.

ISDA will publish the auction supplement and a "big-bang" protocol at the beginning of March, and they will become effective after a two-week adherence period, according to a news release.

The auction supplement will amend the CDS definitions to incorporate the CDS settlement auction terms that are currently included in the auction protocols.

It will also include a provision for the new ISDA Determinations Committee, which will make binding determinations for issues such as whether a credit event has occurred, whether an auction will be held and whether a particular obligation is deliverable.

ISDA said the amendments made by the auction supplement will apply to transactions entered into after the effective date, and the protocol will facilitate the amendment of existing transactions to reflect the new terms.

Busy year delays plans

ISDA planned to publish an auction supplement and protocol by Dec. 31. However, it said this timetable was affected by the major market disruptions of September and October, including the credit events relating to Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc., Washington Mutual, Inc. and the three Icelandic banks - Glitnir Banki HF, Landsbanki Islands HF and Kaupping Banki HF - the Lehman Brothers close-out and the resulting accelerated timetable mandated for central counterparty clearing.

Since the start of September, ISDA has hosted 15 CDS settlement auctions, the release noted.

ISDA is based in New York and represents participants in the privately negotiated derivatives industry.

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