ISDA Says 50% Greek Bond Haircut "Appears" Voluntary

Tyler Durden's picture

Well, they are right: 50% and the gun next to your head does not go off, hence "voluntary" or push for fair treatment in bankruptcy, get exiled from the ponzi in perpetuity, and hope for a 0% recovery at best. Next steps: the upcoming 90% haircut, which make no mistake is coming once the 50% one is deemed insufficient, just like the 21% before it, will also be voluntary? Thank you ISDA for confirming whose interests you have truly at heart, and for forcing everyone to take a quick peek at the members on your "determinations committee."

From ISDA (highlights ours):

For Immediate Release

ISDA Statement on CDS Credit Event Process

NEW YORK, Monday, October 31, 2011 – The International Swaps and Derivatives Association, Inc. (ISDA) today issued the following statement in order to ensure an accurate understanding of how credit events are determined for credit default swaps contracts. Today’s statement is intended to underscore key points articulated in the Greek Sovereign Debt Q&A, updated on October 31, which discussed this issue with regards to the Eurozone proposal for Greek debt.  Some media accounts of the information contained in the Q&A inaccurately described the credit event process.

The determination of whether a credit event occurs under CDS documentation is made by the relevant ISDA Determinations Committee (DC), which consists of 10 sell-side and five buy-side firms.  ISDA serves as secretary to, but does not sit on, the DC.  A supermajority of votes (12 of 15 DC members) is required to find that a credit event has occurred without the decision being subject to external legal review. A weaker majority decision would be subject to external legal review that might overturn such a determination. 

The DC’s review of a potential credit event comes after a proposal has been announced and its final terms are publicly available and only if a market participant requests the DC to take up the matter.  Neither of these has yet occurred with regards to the Greek sovereign debt situation.  No debt issued by the Hellenic Republic has been modified to date, nor have the formal terms for any such modification under the Eurozone proposal yet been released.  No market participant has yet made such a request to the DC.

When the DC does review a situation to determine whether a credit event has occurred, it does so using publicly available information and according to the terms of the ISDA Credit Derivatives Definitions.  The Definitions specify that for a credit event to occur, a restructuring must be binding on all holders of a particular bond or loan.

Based on what we know now, it appears from news reports that the Eurozone proposal involves a voluntary exchange that would not be binding on all holders. As such, it does not appear to be likely that the Eurozone proposal will trigger payments under existing CDS contracts. However, whether or not it does so will be decided by the DC on the basis of the specific facts, if a request is made to them.

More information on the credit event process and the ISDA Determinations Committee is available in the Greek Sovereign Debt Q&A at on the ISDA website and on the Determinations Committee section of ISDA’s website at

For More Information, Please Contact:
Lauren Dobbs, ISDA New York, +1 212 901 6019,
Rose Millburn, ISDA London, +44 203 088 3526,
Donna Chan, ISDA Hong Kong, +852 2200 5906,

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tim73's picture

No wonder they hire physicist at Wall Street. CDS clearly requires deep knowledge of quantum mechanics. It is both dead and undead at the same time. Triggering affects the state of CDS and you are not allowed to do that.

Dr. Gonzo's picture

Funny how things became "voluntary" when you get locked in a private room and coerced with bribery or when that doesn't work black mail or when that doesn't work torture. Everyone miraculously comes to the same consensus when it's all done.

Catullus's picture

"The market is not rigged." -- People most certainly rigging the market

Donlast's picture

O my. oh my.  The corruption is becoming so blatant as to be comic. Just when are these bankers going to be hung, drawn and quartered?  They are very few; the angry run to millions.  

FinalCollapse's picture

The ISDA DC committee consists mostly of CDS sellers (10 out of 15). In order to declare default you need 12 out 15 votes. Great - makes me wonder why they voted in favor of 'no default'. The game was rigged from the beginning. Now it will be up to courts. Under which jurisdiction these CDS fall? If it is Greek courts then they are fucked.

Lord Welligton's picture

< CDS Market is finished

< CDS Market is functional

ivars's picture

All my prediction charts are now in one place without unnecesary text:

Please visit!

you enjoy myself's picture

this is exactly why CDS should never have been allowed in the first place, and will eventually bring this whole house of cards down.  it allows investors to leverage like mad, but then get to claim they're hedged or netted out.  but they're not, as the ISDA and the "voluntary" haircut recipients have just demonstrated -- because triggering a credit event is mutually assured destruction as long as the defaulting issuer had enough CDS written against it.

i wouldn't necessarily blame the ISDA on this.  the Greek bondholders are indeed doing this voluntarily, but (with supreme irony) only because the act of trying to collect on their "insurance" would be far worse for them.  it sets off the great CDS domino collapse -- one or more counterparties can't pay out, thereby defaulting, which triggers an event on CDS written against that counterparty....rinse and repeat.


vegas's picture

I've commented on this before - no need to spell it out again. What gets me is the outright bullshit lying in the face of the facts. As Groucho Marx once said, "you gonna believe me or your lying eyes?"

Watson's picture

If you don't like the way ISDA's CDS documents define default (and that includes the 'Determinations Committee' and process) nothing stopped you and your counterparty agreeing something else. To me, problem not so much with ISDA as with lazy documentation reviewers.

Bansters-in-my- feces's picture

Fucking delusional sock puppets.

FUCK YOU ISDA and your DC Douche bag commitee.

You are ALL cheating thieving no good dirt bags.


benbushiii's picture

So let’s understand this a bit further.  Half of my house burns to the ground, but since I must rely on the insurance adjuster (ISDA) to deem it a loss, which he doesn’t, I do not get paid.  The ISDA becomes an Act of God and the insurance contracts / CDSs are never collected on.  This also explains why there was a melt up last week.  Everyone was short Commodities, the Euro, and Equity Index futures in a correlated trade to their Credit Default Swap exposure. 

downtownshuter's picture

But, but... I was perfectly hedged with my CDS


Sometimes it just doesn't matter how right you are. When TPTB decide you lose, then you lose.

Flakmeister's picture

Just deserts....

Merkel wanted sovereign CDS's banned, next best thing is have them become effectively null and void.

I fully back her position and only wish we had a leader with the sense to realize that the sovereign CDS serve no financial purpose and the cojones to make them illegal.

Hedge Fund of One's picture

The CDS did serve a purpose - they gave investors (banks, pension funds, hedge funds, etc.) confidence to buy the bonds and provide funding to Greek welfare state. When the bond values became impaired, the CDS also allowed those investors to include the bonds on their balance sheet at full value, because they were supposedly insured. This helped support the capital ratios and the share prices of investors that were publicly traded. Now, without some form of real insurance for sovereign bonds, who will buy sovereign bonds or at what price will they be bought?

Flakmeister's picture

Are you that naive?

The European banks have no or minimal capital charges for sovereign debt...

CDS's exist to game the system, the illusion that risk has been mitigated....

Ellesmere's picture



jasebishop's picture

sounds to me like CDS payouts on an approval by approval basis, meaning to me that they choose who gets a payout and who gets shafted.

EZYJET PILOT's picture

Max Keiser reckons that even the banks taking a 50% haircut will be paid back on the sly, so no write downs behind the scenes. It's always a win-win for the banks. Evidence here below:

Hephasteus's picture

Ya that's going to work becaue people haven't woken up and are still in the circle of trust. They are not relentless digging snooping assholes.

FearedDevil's picture

Voluntary like BofA buying Countrywide.... LOL

honestann's picture

Default on all fiat debt.
Swear off ALL fiat currencies forever.
Adopt "grams of gold" as monetary standard.

And finally, hang all the predators-that-be and predator-class: the banksters, regulators and politicians.

canuck's picture

Is it true that banks do not have to hold back capital on government bonds because they are risk free according to Basel I and II and III?

chindit13's picture

So many permutations, so little time.  Even less money.

Clearly this is bigger than either net notional or gross Greek CDS, because it impacts the entire CDS market, including those naked long or short CDSs, and those who think they are hedged.  It is little wonder Italy debt fell after ISDA leaned towards non-event, as anyone who had hedged lost that hedge, so will expect a higher risk premium to hold the debt.  A few hedge funds probably have had a rude awakening, too, as outright positions long CDSs might be worthless for all the wrong reasons.

Does even a single bond holder “volunteering” to take a haircut invalidate the “event” across all Greek CDSs?  Suppose Bank A holds both Greek debt and CDS protection.  It is in their interest to refuse the haircut, claim “event” and collect on the CDS.  How are naked CDSs handled?  Does Kyle Bass have to suffer because a couple of Eurobanks volunteered to take a haircut?  Was Bass naïve enough to rely on ISDA to decide whether or not he gets paid?  I doubt it.

Will we ever know who has CDS exposure, both long and short, and are they on the determination committee of ISDA (~100% certainty)?  Can such a conflict of interest, if uncovered, be grounds for a lawsuit?  Does MF Global also hold a short position on CDSs, which given Corzine’s propensity to lever up, seems likely?

Are CDSs now going to fall into the purview of Nigerian 419 scammers, since most reasonable people now know better than to rely on them?