Jurisdiction(s):
United Kingdom

Key definition

Derivatives definition

What does Derivatives mean? Derivatives are contracts used to transfer or manage risk, whose value is determined by an underlying asset, interest rate, currency, index, commodity, security or credit event. Common types include futures, options, swaps (interest rate and currency), forwards and credit derivatives (such as credit default swaps), traded on exchanges or over the counter. Legally, derivatives create payment or delivery obligations calculated by reference to the underlying. They are typically documented under an ISDA Master Agreement with a Credit Support Annex for collateral, and depend on close-out netting upon default. Key issues include counterparty capacity and authority, governing law and jurisdiction,...

Credit events under the ISDA 2014 Credit Derivatives Definitions: triggers, Governmental Intervention, restructuring, obligations, asset package delivery, settlement and NTCEs

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

This Practice Note summarises the main credit event types in the 2014 ISDA Credit Derivatives Definitions (the 2014 Definitions). It sets out how each event is triggered and applied in practice, and why they matter for credit derivative trades.

What are credit events?

A credit derivative aims to give the buyer protection against specified credit events affecting the underlying reference entity to the trade. These events are listed in the transaction confirmation.

As the credit derivatives market is largely standardised, confirmations typically apply the same credit events to the same reference entities by incorporating the International Swaps and Derivatives Association (ISDA) Credit Derivatives Physical Settlement Matrix (the Matrix).

Reference entities are grouped into ‘transaction types’ by where the reference entity is located. For example:

Sony Corporation would fall within the Standard Japan Corporate transaction type; and
the Kingdom of Spain would be a Western European Sovereign transaction type.

All reference entities in the same transaction type will then use the same credit events. The Matrix is a table produced by ISDA and updated from time...

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Web page updated on 21/05/2026

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