Several years ago, the International Swaps and Derivatives Association, or ISDA, lost much of its credibility when during the peak of the Eurozone debt crisis, it first refused to determine that CDS on Greece had been triggered (i.e., that an event of default had taken place) only to eventually concede – following substantial outside pressure – that Greece had, in fact, defaulted (if only on bonds not held by a certain central bank), but not before penning a “petulant” blog post in which it claimed amusingly that the “credit event/DC process is fair, transparent and well-tested”. The fiasco prompted many, this site included, to dub sovereign Credit Default Swaps as “Schrodinger’s CDS”, contracts which may or may not pay out in case of a default, depending on which way the political winds were blowing at any given time.
Fast forward to today when not only is ISDA in hot water again, but the entire corporate CDS market has been roiled by another indecision by ISDA, which said “it was unable to determine” if Singapore-listed Noble Group, formerly Asia’s largest independent commodity trader was in default or not, creating a vacuum similar to what happened with Greece 5 years ago, and which, according to the FT, has resulted in mass confusion in the corporate bond and CDS market. What is more striking, however, is that this is “the first time ISDA has dismissed a question of default without making a ruling either way.”
Specifically, on August 9, ISDA ruled the following:
This post was published at Zero Hedge on Aug 28, 2017.