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ISDA March 2012 Supplement and Protocol

Insight Robin Powers Robin Powers · March 30, 2012

ISDA has announced the launch of the 2012 US Municipal Reference Entity CDS Protocol.  The purpose of the Protocol is to make similar changes to US Municipal CDS transactions (“Muni CDS”) as were made to corporate and sovereign CDS by the 2009 ISDA Credit Derivatives Determinations Committees and Auction Settlement CDS Protocol. The Protocol is open for adherence and closes at 5pm New York time on Monday April 2, 2012.


The purpose of the protocol is to put into effect the newly published “2012 ISDA U.S. Municipal Reference Entity Supplement to the 2003 ISDA Credit Derivatives Definitions” (the “March 2012 Supplement”) and to bring the documentation and industry standards for municipal CDS transactions in line with the corporate and sovereign CDS markets.

The March 2012 Supplement incorporates the following changes to Muni CDS:

  • Determinations Committee for the Americas Region will decide on Credit Events and other matters.
  • Mandatory auction settlement (solely for purposes of Muni CDS, due to the smaller market liquidity, only if 3 or more dealer members are parties to 300 or more transactions).
  • Rolling “look-backs” for Credit Events (60 days) and Succession Events (90 days).
  • Standardized Fixed Rate Fixed Rate of 1% for single-name investment grade transactions and 5% for single-name high yield transactions.
  • Full 3-month initial Calculation Period.
  • Recovery assumption of 75% for calculating upfront payments.
  • Changes to certain Muni CDS definitions and other Muni CDS specific provisions.
  • “Restructuring” Credit Event” will be automatically triggered for Muni CDS (unlike corporate CDS).
  • Updated Confirmation templates.

These initiatives will be implemented for new transactions in Muni CDS executed on or after April 3, 2012 through the election by counterparties to Muni CDS (each, a “Muni CDS Counterparty”) to incorporate version 18 of ISDA’s Credit Derivatives Physical Settlement Matrix to be published on April 3 (the “Matrix” which includes terms for Standard U.S. Municipal Full Faith and Credit, Standard U.S. Municipal General Fund, and Standard U.S. Municipal Revenue) or the adoption by Muni CDS Counterparties of the March 2012 Supplement.

With respect to Muni CDS executed prior to April 3, 2012, Muni CDS Counterparties will have the option of amending existing transactions to incorporate the March 2012 Supplement or of  adhering to the 2012 ISDA U.S. Municipal Reference Entity CDS Protocol (the “March 2012 Protocol”).  Once a Muni CDS Counterparty adheres to the March 2012 Protocol, the new Muni provisions will be incorporated into all (i) existing Muni CDS transactions and (ii) for all Muni CDS transactions that are entered into from the date of adherence up to July 3, 2012, unless the Muni CDS Counterparty specifies in the transaction’s documentation that it is not covered by the March 2012 Supplement.

All the provisions of the March 2012 Supplement will become effective on April 3, with the exception of the provisions relating to the look-back periods, which will go into effect on June 20.

Amendments to the U.S. Municipal Reference Entity Supplement

In addition to incorporating the now market standard provisions of the Determination Committee, mandatory auction settlement processes and “look-backs” on Credit Events and Succession Events, the March 2012 Supplement also incorporates the contents of the Additional Provisions for Credit Derivative Transactions – U.S. Municipal Entity as Reference Entity, published by ISDA on September 17, 2004, as modified by certain amendments as follows:

  • The definitions of “Accreting Obligation” and “Accreted Amount” have been amended to pick up bonds issued with an original issue price of less than 95%, which will not accrete in accordance with their terms without an accretion table. 
  • A definition has been added for “Double-Barrel Obligation Liability” (i.e., bonds supported by both a general obligation and a revenue source). If a double-barrel bond is specified as a Reference Obligation with respect to a Reference Entity, any Full Faith and Credit Obligation Liability of the Reference Entity (including any double-barrel bond with a different revenue source) would constitute a Deliverable Obligation, unless the parties elect otherwise in the applicable confirmation. 
  • The Electronic Municipal Market Access (EMMA) system of the Municipal Securities Rulemaking Board replaces any Nationally Recognized Municipal Securities Information Repository as a source of Publicly Available in order to take into account recent changes to the continuing disclosure requirements under SEC Rule 15c2-12. 


The Protocol is open for adherence and closes at 5pm New York time on Monday April 2, 2012.

The following documents must be submitted via email to the ISDA office in New York in order to adhere:

  • One signed copy of the Adherence Letter, providing information on the contact person at the Adhering Party.
  • One conformed copy of the Adherence Letter. A conformed copy is an exact copy of the signed letter with the name of the person signing the letter typed on the signature line. A signature should not appear on the conformed copy of the letter.

ISDA will only accept email delivery of Adherence Letters. An original Adherence Letter is NOT required.

All Adherence Letters(signed and conformed) should be submitted via email to MuniCDSProtocol@isda.orgNo other documents are required to be submitted.

For Assistance with Adherence, or if you have any questions about the changes being implemented, please contact:

Robin Powers
(212) 363 0270 x223

Mark Diamond
415.683.5472 ext. 232

Click here for Form of Adherence Letter

Click here for form of Protocol

Click here for 2012 ISDA U.S. Municipal Reference Entity Supplement to the 2003 ISDA Credit Derivatives Definitions