The Greek government’s announcement that its debt restructuring package would include a bond swap set the CDS chain of events into motion, as the swap would restructure the sovereign bonds for which the CDS insurance had been purchased. The event moved forward rapidly from there.
March 9: At 3 p.m. New York time, the International Swaps and Derivatives Association (ISDA) declares a credit event based on its assessment of the swap’s terms. This decision means holders of CDS contracts related to the Greek Republic will have the option to receive payout. Based on information provided by DTCC, ISDA also determines there is sufficient CDS volume to hold an auction.
At 6 p.m. New York time, the Warehouse creates an "event record" and becomes the central source of information for the event as it progresses through settlement. The Warehouse platform allows all customers to see screens showing their Greek CDS transactions. DTCC updates these screens on a near-real-time basis to reflect new trades and any other changes to the inventory.
Each firm begins making decisions about whether it will take payment for each relevant transaction, using the Warehouse to deliver "credit event notices" electronically. These notices are the "triggers" that signal the payout will be taken. The information is transmitted in both directions, between firms and their counterparties, in real time.
March 9-16: The Warehouse continually updates the information on Greek CDS, giving users an up-to-date picture of their transactions while giving regulators a real-time view of the market.
March 16 is the last business day before the auction. CDS holders must finalize their payout decisions.
March 19: The day of the auction, which establishes the price at which the triggered transactions will settle, based on bids and offers provided by the dealers. Creditex and Markit run the auction and publish the results publicly to ensure full transparency. The final price for the Greek CDS is set at 21.5% of par for a payout of 78.5% on the dollar.
DTCC takes this price and applies it to each triggered transaction in the Warehouse – a total of 8,054 transactions across 130 firms for payments in both U.S. dollars and euros.
March 20: The day for the Warehouse’s normal quarterly roll for coupon settlement. DTCC settles these transactions before starting the Greek CDS processing.
March 21: DTCC begins processing the Greek credit event, generating the numbers for bilateral netting. The company gives all customers a report showing their net cashflows for the event once the auction results have been processed.
March 23: The Greek government finalizes its debt restructuring deal. This is also the last day for the Warehouse’s internal processing and the deadline to finalize the cash settlement numbers.
March 26: DTCC moves the cash, sending the bilaterally netted cashflows to CLS, the Warehouse’s bank settlement partner, which then applies a multilateral net.
A total $2.89 billion in payments is transferred from the net sellers of protection to the net buyers.