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,...

ISDA 2014 Credit Derivatives: successor determinations, relevant obligations, backstop date, steps plan, universal and sovereign successors, and ISDA Determinations Committee/calculation agent processes

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Practice notes

What does this Practice Note cover?

This Practice Note summarises the successor provisions in the 2014 isda Credit derivatives Definitions (the 2014 Definitions). It sets out how a successor is identified, including what counts as relevant obligations, the role and actions of the calculation agent and the ISDA Determinations Committee (DC), and which documents must be reviewed to confirm a successor.

What are successors?

‘Reference entity’ is defined in Section 2.1 of the 2014 Definitions as the entity stated in the confirmation together with any successor. A reference entity is fundamental to the value of a credit derivative transaction (see What are credit derivatives?—What is a credit derivative? for an explanation of a reference entity) and, therefore, if that entity changes (through merger, acquisition, or similar event), the value of the transaction may alter because the credit standing of the new reference entity might not match that of the original reference entity. If the new reference entity is weaker, the buyer of the transaction benefits, and if the new reference entity is stronger, the seller of the transaction benefits. This can be viewed as an unfair windfall to one party at the expense of the other under the transaction terms...

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Web page updated on 21/05/2026

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