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Self-referenced credit derivatives — are they enforceable under English law?

Self-referenced credit derivatives — are they enforceable under English law? Capital Markets Law Journal, Vol. 1, No. 1 21 Self-referenced credit derivatives – are they enforceable under English law? Simon Firth* Key points Credit derivatives (transactions which transfer the credit risk associated with a specified ‘reference entity’) are now an important aspect of the financial markets. Generally, the reference entity is a third party but it may instead be one of the parties to the transaction (or another member of its group). A transaction could therefore involve a party making an up-front payment (in the form of collateral or the subscription price for an issue of notes) on the basis that, if a ‘credit event’ occurs in relation to it, it will receive only a part of the payment back on maturity. The credit events invariably include various insolvency events, such as the commencement of winding up. A key concern is whether these transactions may be attacked by a liquidator of that party. 1. Introduction In the burgeoning world of structured finance, credit derivatives represent one of the most successful products. Practically unheard of 12 years ago, the market now has a value of some US$ 8 trillion and continues to grow. The attraction of the products lies in http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Capital Markets Law Journal Oxford University Press

Self-referenced credit derivatives — are they enforceable under English law?

Capital Markets Law Journal , Volume 1 (1) – Jul 1, 2006

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Publisher
Oxford University Press
Copyright
© Published by Oxford University Press.
ISSN
1750-7219
eISSN
1750-7227
DOI
10.1093/cmlj/kml005
Publisher site
See Article on Publisher Site

Abstract

Capital Markets Law Journal, Vol. 1, No. 1 21 Self-referenced credit derivatives – are they enforceable under English law? Simon Firth* Key points Credit derivatives (transactions which transfer the credit risk associated with a specified ‘reference entity’) are now an important aspect of the financial markets. Generally, the reference entity is a third party but it may instead be one of the parties to the transaction (or another member of its group). A transaction could therefore involve a party making an up-front payment (in the form of collateral or the subscription price for an issue of notes) on the basis that, if a ‘credit event’ occurs in relation to it, it will receive only a part of the payment back on maturity. The credit events invariably include various insolvency events, such as the commencement of winding up. A key concern is whether these transactions may be attacked by a liquidator of that party. 1. Introduction In the burgeoning world of structured finance, credit derivatives represent one of the most successful products. Practically unheard of 12 years ago, the market now has a value of some US$ 8 trillion and continues to grow. The attraction of the products lies in

Journal

Capital Markets Law JournalOxford University Press

Published: Jul 1, 2006

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