Template:M summ Credit Derivatives 3.13: Difference between revisions
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You get to specify one | You get to specify one {{cddprov|Obligation Category}} and any number of {{cddprov|Obligation Characteristics}}. Fear not, though: the Obligation Categories are rather like nested Russian dolls: each smaller one fits in the one before. | ||
=== | ==={{Cddprov|Obligation Categories}}=== | ||
So | So {{cddprov|Payment}} is about as wide as a payment obligation can be, and includes the Reference Entities day-to-day outgoings: rent, wages, utilities, even the paper bill, if you can find enough unpaid invoices to tot up to the {{cddprov|Default Requirement}}. | ||
{{Cddprov|Borrowed Money}} requires some kind of [[indebtedness]] — much discussion can be had about what is and is not indebtedness under the {{isdaprov|Cross Default}} page. (This is something ISDA ninjas delight in fiddler with. They really shouldn’t). But in CDS land it is actually “money you gave someone, apropos nothing beyond the clear idea they might one day give it back. | |||
Inside | Inside {{cddprov|Borrowed Money}} there are the two classic kinds of indebtedness: {{cddprov|Loan}}s — generally private, not easily<ref>Yes , yes, [[participation]]s, but if you have played with one of those you won’t think it easy way if transferring, at least not compared with just “handing a security to someone else”</ref> transferable, bilateral credit arrangements (or mildly multilateral — if there is a syndicate), and {{cddprov|Bonds}} — generally public, freely transferable, exchange-traded debt securities. Here you can choose one, the other, or both. | ||
=== | ==={{Cddprov|Obligation Characteristics}}=== | ||
You can choose many of these, though some are mutually exclusive: | You can choose many of these, though some are mutually exclusive: {{cddprov|Not Subordinated}} versus {{cddprov|Subordinated}} being the obvious example. | ||
The JC’s view is that if you are going to engage with credit derivatives, make them | The JC’s view is that if you are going to engage with credit derivatives, make them {{cddprov|Not Subordinated}}. CDS is a troublesome enough asset class where it does work, superficially. It really doesn’t make sense for a capital note. | ||
=== | ==={{Cddprov|Prior Reference Obligation}}=== | ||
There is a cheeky nod here to the | There is a cheeky nod here to the {{cddprov|Successor}} cluster bomb in the shape of the {{cddprov|Prior Reference Obligation}}. Just what mischief {{icds}} thought it was heading off is not clear — surely the answer is to make sure your {{cddprov|Standard Reference Obligation}} table is up to date, not writing Heath Robinson machines prescribing what to do if it is not. | ||
For really, what guide to the real world is a Reference Obligation that once existed, but now does not? Whatever may have since happened, ''that'' obligation paid itself off. What happened of successor Reference Obligations have materially different terms, tenors, and default triggers? | For really, what guide to the real world is a Reference Obligation that once existed, but now does not? Whatever may have since happened, ''that'' obligation paid itself off. What happened of successor Reference Obligations have materially different terms, tenors, and default triggers? | ||
We may be about to find out. A DC question has been posed in exactly these terms in the fallout from the write -down of [[Lucky]]’s [[AT1]] bonds. The | We may be about to find out. A DC question has been posed in exactly these terms in the fallout from the write -down of [[Lucky]]’s [[AT1]] bonds. The {{cddprov|Reference Obligation}} was indeed a {{cddprov|Prior Reference Obligation}}\Aaa that had matured a couple of years ago. | ||
Latest revision as of 08:33, 20 May 2023
You get to specify one Obligation Category and any number of Obligation Characteristics. Fear not, though: the Obligation Categories are rather like nested Russian dolls: each smaller one fits in the one before.
Obligation Categories
So Payment is about as wide as a payment obligation can be, and includes the Reference Entities day-to-day outgoings: rent, wages, utilities, even the paper bill, if you can find enough unpaid invoices to tot up to the Default Requirement.
Borrowed Money requires some kind of indebtedness — much discussion can be had about what is and is not indebtedness under the Cross Default page. (This is something ISDA ninjas delight in fiddler with. They really shouldn’t). But in CDS land it is actually “money you gave someone, apropos nothing beyond the clear idea they might one day give it back.
Inside Borrowed Money there are the two classic kinds of indebtedness: Loans — generally private, not easily[1] transferable, bilateral credit arrangements (or mildly multilateral — if there is a syndicate), and Bonds — generally public, freely transferable, exchange-traded debt securities. Here you can choose one, the other, or both.
Obligation Characteristics
You can choose many of these, though some are mutually exclusive: Not Subordinated versus Subordinated being the obvious example.
The JC’s view is that if you are going to engage with credit derivatives, make them Not Subordinated. CDS is a troublesome enough asset class where it does work, superficially. It really doesn’t make sense for a capital note.
Prior Reference Obligation
There is a cheeky nod here to the Successor cluster bomb in the shape of the Prior Reference Obligation. Just what mischief ISDA’s crack drafting squad™ thought it was heading off is not clear — surely the answer is to make sure your Standard Reference Obligation table is up to date, not writing Heath Robinson machines prescribing what to do if it is not.
For really, what guide to the real world is a Reference Obligation that once existed, but now does not? Whatever may have since happened, that obligation paid itself off. What happened of successor Reference Obligations have materially different terms, tenors, and default triggers?
We may be about to find out. A DC question has been posed in exactly these terms in the fallout from the write -down of Lucky’s AT1 bonds. The Reference Obligation was indeed a Prior Reference Obligation\Aaa that had matured a couple of years ago.
- ↑ Yes , yes, participations, but if you have played with one of those you won’t think it easy way if transferring, at least not compared with just “handing a security to someone else”