Difference between revisions of "CDS Reference Obligation"

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== Definition ==
 
== Definition ==
'''CDS Reference Obligation'''. The underlying obligation against which the CDS provides credit protection. The Reference Obligation is a financial instrument that is either issued or guaranteed by the reference entity. It serves to clarify the precise reference entity protection is being offered upon, and its legal position with regard to other related firms (parents/subsidiaries).
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'''CDS Reference Obligation'''. The underlying obligation against which the [[CDS Contract | Credit Default Swap]] provides [[Credit Protection]]. The Reference Obligation is a financial instrument that is either issued or guaranteed by the reference entity. It serves to clarify the precise reference entity protection is being offered upon, and its legal position with regard to other related firms (parents/subsidiaries).
  
FpML adds "Furthermore the Reference Obligation is ALWAYS deliverable and establishes the Pari Passu ranking (as the deliverable bonds must rank equal to the reference" however this is not borne out in all cases (sometimes the Deliverable Obligation is NOT the Reference Obligation. This term is what we are referrring to when we refer to the credit event. This is what you are referencing to determine whether or not a default has occurred. Note: Loans as Reference Obligation: If the Ref Ob is a loan you can't establish that a default event has occurred but would have to specify some other event that can be obvserved to objectively determine that there has been a default. For example, you might have a loan for a company but monitor a bond issued by that company. If the bond defaults, the deliverable obligation may be the loan or some cash settlement based on the value of that loan (more typically). Detailed Review Notes: Q: Where does it go from here: thing or event? A: Commonly refers to an instrument, i.e. "This is the instrument we are looking at; if this instrument defaults then we are going to pay out on the protection leg. FpML Full Definition: 'The underlying obligations of the reference entity on which you are buying or selling protection. The credit events Failure to Pay, Obligation Acceleration, Obligation Default, Restructuring, Repudiation/Moratorium are defined with respect to these obligations. ISDA 2003 Term:' Also FpML referenceObligtion choice entry: 'The Reference Obligation is a financial instrument that is either issued or guaranteed by the reference entity. It serves to clarify the precise reference entity protection is being offered upon, and its legal position with regard to other related firms (parents/subsidiaries). Furthermore the Reference Obligation is ALWAYS deliverable and establishes the Pari Passu ranking (as the deliverable bonds must rank equal to the reference obligation). ISDA 2003 Term: Reference Obligation' Deifnition Origin:FpML adapted
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== Notes ==
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FpML adds "Furthermore the Reference Obligation is always deliverable and establishes the Pari Passu ranking (as the deliverable bonds must rank equal to the reference" however this is not borne out in all cases (sometimes the Deliverable Obligation is NOT the Reference Obligation.  
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This term is what we are referrring to when we refer to the [[Credit Event]].  
  
 
== Disclaimer ==
 
== Disclaimer ==

Latest revision as of 14:16, 13 February 2020

Definition

CDS Reference Obligation. The underlying obligation against which the Credit Default Swap provides Credit Protection. The Reference Obligation is a financial instrument that is either issued or guaranteed by the reference entity. It serves to clarify the precise reference entity protection is being offered upon, and its legal position with regard to other related firms (parents/subsidiaries).

Notes

FpML adds "Furthermore the Reference Obligation is always deliverable and establishes the Pari Passu ranking (as the deliverable bonds must rank equal to the reference" however this is not borne out in all cases (sometimes the Deliverable Obligation is NOT the Reference Obligation.

This term is what we are referrring to when we refer to the Credit Event.

Disclaimer

This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.

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