ISDA Unanimous - No Payout On Greek CDS

Tyler Durden's picture

As expected by virtually everyone:


Keep in mind, as criminal as this appears, and as damaging to the CDS market, the real trigger will be what ISDA does determines following the end of the PSI process. If there is no credit event then either, especially when the CACs are triggered as expected - an event which will certifiably be a trigger event under Section 4.7, then ISDA is truly hell bent on blowing up the CDS market as a hedging vehicle in its entirety.

As a reminder, here is the EMEA determinations committee:


Voting Dealers
Bank of America / Merrill Lynch
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Societe Generale

Consultative Dealers
The Royal Bank of Scotland

Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)


As a quick follow up, the bolded hedge fund in the ISDA determination committee is the party that many expect to be the primary hold out in the PSI. There is much more to this story than meets the eye, especially if Elliott voted with the rest of the banks for the unanimous decision.

Full PR:

EMEA Determinations Committee Statement March 1, 2012

In light of today’s EMEA Determinations Committee (EMEA DC) unanimous decisions in respect of the two potential Credit Event questions relating to the Hellenic Republic (DC Issue 2012022401 and DC issue 2012022901), the EMEA DC has agreed to publish the following statement:

The first submitted question (DC Issue 2012022401) asked whether the holders of Greek law bonds had been subordinated to the ECB and certain NCBs whose bonds were acquired by the Hellenic Republic prior to the implementation of new Greek legislation such that such subordination constitutes a Restructuring Credit Event. (The full text of the question is available here

The EMEA DC unanimously determined that the specific fact pattern referred to in the first submitted question does not satisfy either limb of the definition of Subordination as set out in the ISDA 2003 Credit Derivatives Definitions (the 2003 Definitions) and therefore a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The second submitted question (DC Issue 2012022901) asked whether there had been any agreement between the Hellenic Republic and the holders of private Greek debt which constitutes a Restructuring Credit Event. (The full text of the question is available here

The EMEA DC determined that it had not received any evidence of an agreement which meets the requirements of Section 4.7(a) of the 2003 Definitions and therefore based on the facts available to it, the EMEA DC unanimously determined that a Restructuring Credit Event has not occurred under Section 4.7(a) of the 2003 Definitions.

The EMEA DC noted, however, that the situation in the Hellenic Republic is still evolving and today’s EMEA DC decisions do not affect the right or ability of market participants to submit further questions to the EMEA DC relating to the Hellenic Republic nor is it an expression of the EMEA DC’s view as to whether a Credit Event could occur at a later date, in each case, as further facts come to light.

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The Swedish Chef's picture

What a shocker... Who woulda thunk it?

maxmad's picture

This will actually backfire on them!  Liquidity trap!!!!

Hober Mallow's picture

I am Tarzan


GetZeeGold's picture



It's wasn't my fault......please don't default me!



In other news.....


Free Jon Corzine!!!!


Oh wait.......he is.



bdc63's picture

My mother used to always tell me that 'life isn't fair' ... is this what she was talking about?

Comay Mierda's picture

Any buyer of cds should have seen this coming. Did they actually think the criminal banking mafia would honor these contracts? Sovereign bond rates have been artificially low for a long time because enough fools in the market thought cds were genuine risk reduction.

on a side, a lot of lawyers are going to get rich battling this ruling out in court for years to come

GetZeeGold's picture



Wait.....are you telling me the criminal banking mafia......are crooks?


Omen IV's picture

the more i look at so many aspects of business today - the real 1% are actually less than 1/8 of 1% - no matter how rich you are  - you need to be able to pony up minimum of $1 milllion to - politicians, judges and regulators and minimum of $2.5 million to the lawyers and lobbyists to cover you when there is a problem - otherwise you are part of the rabble -  being rich is never enough only mega rich and very connected - chins the bar! 

Kayman's picture

Thank you for your premium... Claim denied...

p.s.  go fuck yourself....

the Syndicate.

GMadScientist's picture

"Liquidity trap!!!!"

C'mon...if that were true, we'd see corps hoarding cash and...oh...shit.

Jefferson's picture

This is bullish because now the price of the CDS insurance will go down because there is no risk the counterparty will be required to pay up. Then the MSM will spin this as showing less credit risk on sovereign debt.

kridkrid's picture

Win Win.  What could go wrong?

Sizzurp's picture

Well if you can't buy insurance on the crappy bonds you buy, I guess there is no reason to buy the crappy bonds anymore.  Also, all these banks that have been writing the CDS's and getting paid nice premiums, are going to see that cash flow go away.  What a bunch of crooks.

catacl1sm's picture

Absolutely correct. Considering that all they care about is money, they must have calculated that the lost revenue stream (at least over a period of time) is less than the cost of paying out on the CDS's, especially if the CDS's will bankrupt them.

Robslob's picture

Bankers fucking Bankers?


Starting to get confusing.

johnQpublic's picture

pardon my ignorance, BUT....

isnt it a good thing if the whole CDS thing is basically bullshit?

quarter quadrillion notional dollars and all

remove the CDS and you remove the ability to blow up countrys and financial institutions

Boilermaker's picture

Well, if selling fraudulent financial instruments and pocketing the profits is good....then yea.

What if you crash your car and call up State Farm and they say....ehhhh....we don't consider your crash and actual crash.  Sorry.

GetZeeGold's picture



Hardly a scratch........lil primer will fix that right up.



catacl1sm's picture

"I've still got my legs!"

Vince Clortho's picture

Excellent.  +1


Now don't be giving them any ideas.

Manthong's picture

Then you don't exchange a portion of your stored weatlh for State Farm's fraudulant policy.

A dollar in any bank account is an exchange of wealth for their promise to pay you to use it and their promise to give it give it back to you.

They don't pay you to use it anymore, and the question is will they give it back.

I look to the GM and Greek bondholders for some help with that answer.

That used to be a nominal concept, what with inflation and all but now it is a real threat of the value af any promise linked to the financial system.

Raging Debate's picture

Very good analogy Boilermaker. As my Grandmother use to say regarding the Great Depression era was a "contract is only as good as the paper it is written on".

That for me was pretty easy to understand at an early age.
Her other one was "Never trust a banker they love foreclosures". Now that advice I didn't fully understand until 2009.

Massive, broken monetary promises between sovereigns become currency wars, trade war and real war. It's 1937 all over again. Good luck and God bless you all. We're going to need it.

RockyRacoon's picture

MF Global was a trial run to see how contracts could be negated and wealth stolen.   This is another trial run to see how easy it will be to steal even more institutionalized fortunes.   Yeehaw!   Ain't it sweet?   Some very rich folk are getting their heads ripped off.   Lovin' the show.

For all of those here who would like to bash the underwater homeowners walking away from their "contractual obligations" of the mortgage...  this shows who started it and how they will eventually fall from grace.

Schmuck Raker's picture

Remove CDS and you remove hedging on sovereign bond, and demand.

maxmad's picture

This will create a collapse!  hmmmmm... maybe thats what they want...

espirit's picture

Greece only has the sausage half-way in, when they decide to go "all in" and refuse to pay - let the party begin.

kridkrid's picture

Collapse is enevitable.  This is russian roulette and every chamber is loaded.  The only questions that remains is timing.

jayman21's picture

June of this year....Martin Armstrong has been talking about this month the last 3 or 4 months.  He also is saying the capital that is leftover in Europe with flow to the US equity market...and then it will begin to flow out in 2015 or somewhere around there.

Interesting times we live in.

surf0766's picture

What impact on rates would it have? There has been much discussion on here about the potential for this to push rates beyond the reach of what sovereigns can pay. In the end if this is true, they will default anyway. Correct?

Schmuck Raker's picture

Yes, though I think it is more accurate to say "...they will default sooner."

Ghordius's picture

or they will be fully monetized sooner

Schmuck Raker's picture


Wouldn't be any fun if we knew which, would it? :)

GMadScientist's picture

Rates cease being nailed to the floor (but when paying with synthetic confetti, does it really matter?).

That logic holds true for any rate above 0, for the "sovereigns" (who are anything but).

Ghordius's picture

though this begs the question about how there was any demand before CDSs were "invented".

Schmuck Raker's picture

I didn't say all demand.

Besides, NOW is what matters. THEN, things looked rosier.


But still, your argument is valid. Before CDS there probably was less demand for debt => higher rates => less available credit => wiser investment => less leverage => greater stability of the whole financial system. [good times, good times...sigh]

Ghordius's picture

the really good times? look up how Philip II of Spain and Elizabeth I of England payed their creditors!

You know who really stabilized the sovereign bond market and made it the way it was until CDSs? - drum roll - the Rothschilds.

And their customers knew they were real market makers that would always hold a sizable portion of them - so there were real persons with skin in the game.

GeneMarchbanks's picture

If by 'stabilized' you mean subverted, then yea.

Die Weiße Rose's picture

Global Bond market size

As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated $82.2 trillion, of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to Bank for International Settlements (BIS), or alternatively $35.2 trillion as of Q2 2011 according to Securities Industry and Financial Markets Association (SIFMA).

Nearly all of the $822 billion average daily trading volume in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, primarily corporate, are listed on exchanges.

Amounts outstanding on the global bond market increased by 5% in 2010 to a record $95 trillion. Domestic bonds accounted for 70% of the total and international bonds for the remainder. The US was the largest market with 39% of the total followed by Japan (20%). As a proportion of global GDP, the bond market increased to 130% in 2010 from 119% in 2008 and 80% a decade earlier.

The considerable growth means that at the end of 2010 it was much larger than the global equity market which had a market capitalisation of around $55 trillion. Growth of the market since the start of the economic slowdown was largely a result of an increase in issuance by governments, with government bonds accounting for 43% of the value outstanding at the end of 2010, up from 39% a year earlier.

The outstanding value of international bonds increased by 3% in 2010 to $28 trillion. The $1.5 trillion issued during the year was down 35% on the 2009 total. The first quarter of 2011 was off to a strong start with issuance of nearly $500bn. The US was the leading centre in terms of value outstanding with 24% of the total followed by the UK 13%.

Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds, banks and mutual funds. In the United States, approximately 10% of the market is currently held by private individuals.

Bond markets determine the price in terms of yield that a borrower must pay in order to receive funding. In one notable instance, when President Clinton attempted to increase the US budget deficit in the 1990s, it led to such a sell-off (decreasing prices; increasing yields) that he was forced to abandon the strategy and instead balance the budget.

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.

GMadScientist's picture

I've heard tell of a time when holding bonds was rewarded (for liquidity or time preference as you see fit) with yields.

Goddamn fairyfolk.


kridkrid's picture

There was demand because we were in the early stages of creating the monetary ponzi scheme.  As we embarked on the 40 year bubble that is pure fiat / credit money where virtually all money is loaned into existence... sovereign debt didn't look so bad.  Who cares if the sysem is built to collapse if you can get our before it does.  The further along the path of unsustainability we went, the more sweatners were needed to play in the ponzi sandbox.  At this point, the world is completely disconnected from reality.

chindit13's picture

Don't confuse CDSs with derivatives in general.  The total CDS market, even gross notional, is not an especially large part of the overall derivatives market. It is probably less than 2% of the total derivative market.  Think of CDSs as put options on bonds.

Regarding derivatives as a whole, I agree with your comment.  While some derivatives have legitimate uses (e.g., some rate swaps, FX swaps), most other derivatives just help create an illusion that risk can be minimized.  In reality, risk just ends up in the lap of someone who cannot afford it and who probably misprices it...AIG being the most notable example.  Furthermore, Lehman showed everyone that the potential damage is not limited to net notional.

Finally, the latest figures I can find on Greece CDSs are slightly less than $3 billion net notional and around $160 billion gross notional.  Not all are owned as a hedge of an underlying sovereign bond position.  There is no requirement that they play that role.

Schmuck Raker's picture

"The total CDS market, even gross notional, is not an especially large part of the overall derivatives market. It is probably less than 2%..."

Derivatives market estimated to equal $700 Trillion, X 2% =

$15 Trillion CDS Market. Hardly chicken feed.

Jake88's picture

If this puts an end to these weapons of financial mass destruction then a good thing will have come out of it.

knight99's picture

Thats fked!! Are they say no trigger even if CAC is excuted?

Ghordius's picture

Freedom! Freedom to default, yeah! BAN CDSs

GeneMarchbanks's picture

While I sympathize with your call to restore sanity you'll just have to accept that a 'market' for something exists only as long as there are buyers.

Mundus vult decipi

Ghordius's picture

look, Gene, I know you are sometimes horrified by my (continental european) views on markets and state - but there is a limit to everything.

no, I don't see your argument - the typical buyers are huge corporations and hedgies, to make the TBTF argument stronger

five MegaCorps dominating the whole world? come on, I constantly read here all those rants against central banks being the central planners, but no, as soon as we get to the derivatives it's fine, it's the market. this huge derivatives betting casino is forcing the world to go the way the five want, and give them all liberties due to the ReallyFuckingTooBigTooFail.

it was a scam from the start on, now they are backing from the bluff. there are serious problems enough to cater to the whims of bankster's bets.

and since there is always someone asking for solutions: cut the megabanks to less harmful pieces. even the US of A has the laws and precedents for doing it, last seen with Bell and the Baby Bells.