The International Swaps and Derivatives Association (ISDA) committee tasked with making a ruling on the tussle over Noble Group's credit-default swaps has suspended any attempts to settle the derivatives contracts bilaterally...

The widespread confusion over whether sellers owe money to buyers of credit protection is unusual, as the CDS market has relied on the rulings of ISDA's "determination committees" since 2009 to decide when a company is in default.

While Noble Group has not formally defaulted on any debt, buyers of CDS claim that a recent extension to loan repayment terms amounted to a debt restructuring -- which can also trigger payouts.

Earlier this month the ISDA committee responsible for deciding on the status of Noble's debt said it was unable to determine if the loan extension qualified as a restructuring, as they were unable to obtain the loan's underlying documentation. It is the first time a committee has dismissed a question of default without ruling either way.

This created a vacuum that allowed bilateral claims to proliferate across the market. After one claim was filed, it forced a chain reaction of claims and counterclaims that spiralled through the market, since banks and funds often hold offsetting positions or hedges in the CDS market.

See also this FT article of Aug. 27th. Some excerpts:

The plight of heavily indebted Noble Group is pitching some of the world's biggest investment banks against each other in a tussle over credit default swaps written against the troubled commodity trader's borrowings.

Goldman Sachs, Nomura and hedge funds who stand to gain from having bought CDS protection on Noble are facing off against JPMorgan, BNP Paribas and other traders. It is shaping up to be an important test for reforms made to the $10tn CDS market a decade after it was widely blamed for exacerbating the financial crisis...

There is more than $1.2bn of CDS written on Noble's debt, according to ISDA data, and banks and hedge funds often hold offsetting positions or hedges in the same products.

This meant that, after the first claim was filed early last week, it forced a chain reaction of claims and counterclaims that spiralled through the market, with one source saying 12 institutions had triggered notices of default. The net total owed by sellers of CDS protection on Noble could be up to $157m...

"It's like the whole last 10 years of market development have been put to one side," said Nigel Dickinson, a derivatives lawyer at Norton Rose Fulbright.

"Because the ISDA determinations committee mechanism was supposed to avoid problems like this -- market participants would ideally not need to trigger credit protection bilaterally."...

The quarrel over Noble is the latest in a string of controversies in the CDS market. The collapse of Spanish lender Banco Popular sparked a dispute over the payout on CDS due to a dispute over legal claims against the bank.

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