Chapter 12: Credit Swaps

In this section

• Credit Derivatives
  Explore how financial markets transfer and hedge credit risk using credit derivatives. Understand CDS mechanics, Canadian regulatory frameworks, and the role of ISDA in shaping global credit-risk management.
• The Role of Credit Derivatives
  An in-depth exploration of how credit derivatives operate in modern finance, providing insights into hedging default risk, managing credit portfolios, and speculating on changes in credit quality.
• The Structure of Credit Default Swaps (CDSs)
  In-depth exploration of how Credit Default Swaps function, including key roles, settlement methods, and Canadian regulatory implications.
• What are Index CDSs?
  Explore the concept of Index Credit Default Swaps (Index CDSs), including how they are structured, how they provide diversified exposure to credit risk, and why they play a critical role in modern credit markets.
• Why are CDSs and Index CDSs Used?
  An in-depth explanation of how Credit Default Swaps (CDSs) and Index CDSs provide hedging, speculation, arbitrage, and regulatory capital management opportunities, with references to Canadian regulations, real-world scenarios, and Canadian Investment Regulatory Organization (CIRO) considerations.
• New Regulatory Requirements (Clearing/Reporting) for Credit Derivatives
  Explore mandatory clearing obligations, trade reporting requirements, and recent Canadian regulatory reforms for credit derivatives under CIRO and the CSA. Learn ways to reduce systemic risk, understand NI 94-101 and NI 94-102, and uncover best practices to stay compliant.
• Credit Event Settlement (Bankruptcies, Restructurings)
  Explore how credit events are defined, triggered, and settled within Credit Default Swaps, focusing on bankruptcies, restructurings, ISDA committees, and cash settlement auctions.
• Standardization via ISDA & Market Trends (Index-Based CDS)
  Explore how ISDA fosters standardization in credit derivatives, focusing on the rise and mechanics of Index-Based CDS, alongside evolving market trends and regulatory frameworks in Canada.