Page 42 - PRIAA Glossary

CREDIT DERIVATIVE CASH SETTLEMENT
Settlement of a credit derivative contract after the occurrence of a credit event, by means of a payment from protection seller to protection buyer. The payment is equal to the difference in the notional of the contract and the final price
of an agreed reference obligation, as determined by cash settlement valuation mechanics or in a credit event auction.
CREDIT DERIVATIVE PHYSICAL SETTLEMENT
Settlement of a credit derivative contract after the occurrence of a credit event by the delivery of a deliverable obligation of the reference entity from protection buyer to protection seller. Under physical settlement, the seller also pays the buyer the face value of the deliverable obligations it receives. Physical settlement requests can now be submitted as part of the auction process for pre-determined obligations.
CREDIT EVENT
An event linked to the deteriorating creditworthiness of an underlying reference entity in a credit derivative transaction. The occurrence of a credit event triggers full or partial termination of the contract and a compensatory payment from protection seller to protection buyer, through either physical or cash settlement. The market standard credit events include bankruptcy, failure to pay and restructuring. However, some contracts also include obligation acceleration, obligation default and repudiation/moratorium. The ISDA Determinations Committee now publishes its decisions as to whether a credit event has occurred on a particular reference entity on eligible credit derivative transactions.
CREDIT EVENT AUCTION
An independently administered synthetic auction process on a set of defined deliverable obligations that sets a reference final price that can be used to facilitate cash settlement of all covered transactions following a credit event.
CREDIT EVENT NOTICE (CEN)
One of the notices required to be delivered to trigger a credit derivative transaction when a notifying party believes a credit event has occurred. A CEN must contain a description in reasonable detail of the facts relevant to the determination that
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