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The New ISDA 2003 Credit Derivatives Definitions

This article does not attempt to be a complete guide but highlights some of the more important changes made in the ISDA 2003 Credit Derivatives Definitions (published by ISDA on 11 February 2003). In relation to the Restructuring Credit Event, the 2003 Credit Derivatives Definitions also consolidate a number of supplements published by the Credit Derivatives Market Practice Committee during 2001. The structure of the 2003 Credit Derivatives Definitions remains unchanged.

We will look at:

2001 Supplements

The 2003 Credit Derivatives Definitions consolidate the provisions of the following supplements:

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Parties to a Credit Derivatives Transaction now have the choice of one of four alternative approaches in relation to the Restructuring Credit Event:

Mod R is generally favoured in North America while Mod Mod R, is used more by in the European markets. The main differences between these two approaches are in:


Mod R:

Mod Mod R:

Please note that:


The Credit Event has been amended so that the repudiation or imposition of a Moratorium must be declared by an authorised officer (of the relevant Reference Entity or the Government Authority) and the declaration will only constituted a Potential Repudiation/Moratorium. A Repudiation/Moratorium will occur only if a Failure to Pay or a Restructuring occurs with certain periods specified (i.e. before the Repudiation/Moratorium Evaluation Date, cf. Section 4.6(a)).

Not Subordinated Obligation
The old Pari Passu Ranking has been replaced by the new Not Subordinated Obligation. Please see the meaning of “Subordination” in Section 2.19(b)(i)(B). Please note that whether an Obligation is or is not Subordinated is determined as of the Trade Date or the issue date of such Obligation, whichever is the later.

Notice of Physical Settlement
The Notice of Physical Settlement is supposed to be binding but it is still possible to make amendments to some of the information. The Buyer may for example amend the notice before the Physical Settlement Date and correct any errors or inconsistencies in relation to Deliverable Obligations prior to the Delivery Date.

Alternative Settlement
The 2003 Credit Derivatives Definitions introduce two alternative delivery procedures to enable the Buyer to make the delivery:

Please note that the second procedure does not apply where:


Guarantee Obligations
For discussion relating to changes made in relation to guarantee obligations, please refer to our article on ISDA 2003 Guarantee Supplement.
The 2003 Credit Derivatives Definitions will no doubt replace the 1999 Credit Derivatives Definitions over time but perhaps not before more changes or further supplement (cf. e.g. the ISDA 2003 Guarantee Supplement). The ‘official’ implementation date of the 2003 Credit Derivatives Definitions was agreed to be 20 June 2003. It is however not binding on market participants.

If you would like to discuss any of the above, please do not hesitate to contact us at [email protected].

Please also refer to our other articles in the series:

The 2002 Master Agreement
The 2002 Master Agreement Protocol
The New 2002 Equity Derivatives Definitions
May 2003 Guarantee Supplement

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