Credit default swap

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Credit default swap

A credit derivative contract between two parties where the buyer makes periodic payments (over the maturity period of the CDS) to the seller in exchange for a commitment to a payoff if a third party defaults. Generally used as insurance against default on a credit asset but can also be used for speculation.

Credit Default Swap

A swap in which the buyer makes a series of payments and, in exchange, receives a guarantee against default from the seller on a designated debt security. That is, the buyer transfers the risk that a debt security, such as a bond, will default to the seller, and the seller receives a series of fees for assuming this risk. In some ways, a credit default swap is like insurance, but there are significant differences. Prominently, the buyer of the credit default swap need not own the underlying debt security. Thus, the buyer may be speculating on the potential for default on the designated security. Likewise, the seller is not required to have the cash available to pay the buyer in case the designated security does default. This lack of regulation has raised concern, especially during the late 2000s credit crunch.
References in periodicals archive ?
Although Dodd-Frank's regulation of credit default swaps may succeed in stemming some of the systemic risk that these derivative financial instruments create, the statute does not prevent credit-default-swap holders from forcing companies into bankruptcies that otherwise would not occur.
Credit default swaps are tradable financial derivatives that function as a default insurance contract for corporate debt.
Instead, credit default swaps came to be used by banks in a way that no one anticipated--to avoid banking regulations.
NEW YORK -- Morgan Stanley, a registered Futures Commission Merchant and market leader in derivatives trading and clearing, announced that today it cleared OTC credit default swap transactions through the newly established ICE Clear Credit, formerly Ice Trust U.
In a preliminary research paper, Duffie, and GSB doctoral student Haoxiang Zhu, conclude that the central clearing houses founded to rationalize the $27 trillion market for credit default swaps will not remove nearly as much risk as regulators might hope.
Currently all major global credit default swap dealers use CLS Bank to settle obligations under credit default swaps.
Since that time, the vast majority of credit default swaps traded have been registered in the Warehouse.
Fitch's rating also does not address the risk associated with the ability of the Credit Default Swap Counterparties, the Repo Counterparty, and the Trust Property to provide payment to the trust.
is a synthetic collateralized swap obligation giving investors leveraged access to the credit risk of a diverse portfolio of credit default swaps comprising primarily non-investment-grade corporate obligations.
NEW YORK -- Centerbrook Financial LLC ("Centerbrook" or the "Company") today announced that the Company completed its second transaction, providing a pool of credit default swaps in connection with the re-securitization of approximately $175 million of CharterMac's (NYSE:CHC) existing multifamily revenue bonds.
We strongly support the SEC's recent efforts to promote central counterparty clearing of credit default swaps.
IXIS"), Centerbrook will be a provider of credit intermediation products, including credit default swaps, to the affordable housing finance industry.