Swiss panel approves UBS as sole heir to Credit Suisse debt swaps

The committee that oversees the credit default swaps market has decided that the UBS Group will become the entity of reference for Credit Suisse’s CDS contracts.

The Derivatives Selection Committee said UBS is “the sole successor to Credit Suisse,” according to a notice on its website Monday. The decision comes nearly four months after the Swiss government brokered a deal for UBS to take over its sunken rival.

The committee cited UBS Group’s June 12 statement regarding the completion of the Credit Suisse acquisition as the basis for its decision. And “UBS” bears the obligations owed to the “Credit Suisse” group under the existing debt securities at that stage, according to “Bloomberg”, and Al reviewed it.

Since the acquisition was announced in March, investors have begun to bet that the price of the Credit Suisse and UPS contracts will eventually converge, narrowing the gap between them. Credit Suisse’s 5-year master contracts were trading at 88 basis points as of 9:13 am in London, down from 900 basis points in mid-March, according to data firm ICE. UBS’s equivalent CDS is trading at 92.5 basis points.

The process of selecting the new standard reference obligations, or which UBS group securities to replace the Credit Suisse group swaps, has begun, according to the statement. Until a decision is made, the committee said, “some disruption is likely.”

The committee also urged market participants to act swiftly in determining the best ways to deal with transactions related to the credit-subordinated debt swaps of the “Credit Suisse” group, and identified a number of options.

The net notional volume of Credit Suisse swaps outstanding was $1.74 billion as of May 12, according to data from Depository Trust & Clearing Corporation.

While 11 participants in the committee agreed that “UBS” would become the reference entity for the credit swaps of “Credit Suisse”, while there was no vote against it. Under the authority’s rules, Credit Suisse declined to participate in the committee’s decision.

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