FieldsIssue Name (961) Sweep Date (1197): credit event will processed when corporate actions are triggered for this date Effective Date: date the notional reduction will take effect Event Determination Date: date to which accruals will be rebated Pay Date: date that cash is due to settle Business Offset Days: number of business days to offset value submitted for Effective Date to prevent cancelation of prior day's variation margin Corporate Action Status (54) = Released Corporate Action Sub Priority: priority with which credit events will be processed (use default of 1 unless there are two or more concurrent credit events) Mandatory/Voluntary Indicator (1734) = Mandatory Price (1692): recovery amount set at auction (this will be subtracted from 100 to determine the amount due based on the % of notional reduction) Factor Rate (1696): new factor, between 0.99999 and 0.00001 (Rate of Reduction used to process the close will be calculated from this factor) Corporate Action Type (1728) = CREDIT EVENT
Credit Event ExampleFactor = new factor applicable to the index = Current Factor - Rate of Reduction = Current Factor - (1 / # of constituents in the index) % of Notional to Close = Original Face x Rate of Reduction $ Payable / Receivable = % of Notional to Close * (100 - Recovery Amount) * Price Multiplier
Example C shows credit event calculations, including factor and notional adjustments. Current Factor | Initial # of Constituents | Rate of Reduction (1 / Initial # of Constituents) | New Factor (Current - Rate of Reduction) | Original Face | New Notional | Notional Closed |
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1 | 100 | 0.01 | 0.99 | 1,000,000 | 990,000 | 10,000 | 1 | 125 | 0.008 | 0.992 | 1,000,000 | 992,000 | 8,000 | 1 | 80 | 0.0125 | 0.9875 | 1,000,000 | 987,500 | 12,500 | | | | | | | | 0.99 | 100 | 0.01 | 0.98 | 1,000,000 | 980,000 | 10,000 | 0.992 | 125 | 0.008 | 0.984 | 1,000,000 | 984,000 | 8,000 | 0.9875 | 80 | 0.0125 | 0.975 | 1,000,000 | 975,000 | 12,500 |
Interest accrues from most recent coupon date up to and including Event Determination Date. There are some exceptions, as shown in Example D below. Rebate is applicable when Event Determination Date < Most Recent Coupon Date < Cash Settlement Date of Credit Event. | Outside EDD/Next Coupon & No Rebate | Regular Business Day & Rebate | Regular Non-Business Day & Rebate | Maturity Business Day & Rebate | Maturity Non-Business Day & Rebate |
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Previous Coupon Actual Pay Date | 12/1/2008 | 12/22/2008 | 12/22/2008 | 12/22/2008 | 12/22/2008 |
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Previous Coupon Adjusted Pay Date | 12/1/2008 | 12/22/2008 | 12/24/2008 | 12/22/2008 | 12/24/2008 |
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Next Coupon Actual Pay Date | 3/1/2009 | 3/22/2009 | 3/22/2009 | None | None |
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Event Determination Date (EDD) | 12/9/2008 | 12/9/2008 | 12/9/2008 | 12/9/2008 | 12/9/2008 |
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EDD + 1 | 12/10/2008 | 12/10/2008 | 12/10/2008 | 12/10/2008 | 12/10/2008 |
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Maturity Date | Any | 12/22/2010 | 12/22/2010 | 12/22/2008 | 12/22/2008 |
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Credit Event Cash Settlement Date | 1/16/2009 | 1/16/2009 | 1/16/2009 | 1/16/2009 | 1/16/2009 |
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Fixed Rate Accrues From Up To and Including | 12/1/2008 12/9/2008 | 9/22/2008 12/21/2008 | 9/22/2008 12/23/2008 | 9/22/2008 12/22/2008 | 9/22/2008 12/22/2008 |
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Fixed Amount Pays | 1/16/2009 | 12/22/2008 | 12/24/2008 | 12/22/2008 | 12/24/2008 |
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Rebate Accrues From Up To and Including | N/A N/A | 12/10/2008 12/21/2008 | 12/10/2008 12/23/2008 | 12/10/2008 12/22/2008 | 12/10/2008 12/22/2008 |
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Previous Accrual Ended | 11/30/2008 | 12/21/2008 | 12/23/2008 | 12/22/2008 | 12/22/2008 |
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Roll (V17 R2)When credit events occur CDXs start trading on a new factor and a new "series" of the CDX is issued. This new series has identical terms and conditions, with the exception of a change to the identifier. Beginning in V17 R2 existing positions can be rolled to the new series using an Exchange Offer corporate action. This allows a single announcement to be processed against all entities holding the CDX. Applying the corporate action is a two-step process as described below. Set up Exchange Offer corporate action announcement From Issue Name (961): Issue Name of old CDX series Sweep Date (1197): roll will be processed when corporate actions are triggered for this date Ex Date (65): date on which roll activity will occur Exchange Offer Type (2291) = Rate Cost Allocation Rate (1279): typically 1.00 to roll position on a 1-to-1 basis To Issue Name (1141): Issue Name of new CDX series Corporate Action Type = Exchange Offer
Trigger corporate action manually via global processing or automatically using an automated job; both methods rely on the Merger/Exchange Offer/Assimilation/etc. job
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