Credit default swap (CDS) structure diagram—physical settlement
Credit default swap (CDS) structure diagram—physical settlement

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Credit default swap (CDS) structure diagram—physical settlement
  • Step-by-step guide

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Step-by-step guide

  1. Protection seller (party A) and protection buyer (party B) enter into an ISDA Master Agreement, Schedule and confirmation with each other to document a CDS.

  2. The CDS references a reference entity.

  3. In this confirmation, party A and party B agree that the transaction will be physically settled in the event of a credit event on that reference entity.

  4. Party B agrees to pay a fee or premium to party A—this may be an upfront payment or periodic payments throughout the life of the CDS contract.

  5. <•