Credit default swap (CDS) transactions
Credit default swap (CDS) transactions

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

  • Credit default swap (CDS) transactions
  • What is a CDS transaction?
  • Who enters into CDS contracts?
  • Step-by-step guide to how a CDS work
  • Why enter into a CDS?
  • How to document a CDS
  • Credit default swaps referencing asset-backed securities (CDS on ABS)
  • Basket CDS
  • Loan only CDS (LCDS)
  • Collateralised debt obligations (CDOs)
  • more

BREXIT: As of 31 January 2020, the UK is no longer an EU Member State, but has entered an implementation period during which it continues to be treated by the EU as a Member State for many purposes. As a third country, the UK can no longer participate in the EU’s political institutions, agencies, offices, bodies and governance structures (except to the limited extent agreed), but the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements) and submit to the continuing jurisdiction of the Court of Justice of the European Union in accordance with the transitional arrangements in Part 4 of the Withdrawal Agreement. For further reading, see: Brexit—introduction to the Withdrawal Agreement. This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Key issues for derivatives transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What is a CDS transaction?

The most common type of credit derivative transaction is a credit default swap (CDS). This is a transaction between two parties which is based on the creditworthiness of a third party, known as the reference entity. This reference entity can be a corporate, sovereign, municipality or a similar organisation and does not need to be a party to,