credit default swap

A contract between a credit protection seller (seller) and a credit protection buyer (buyer) where, in consideration of the buyer paying the seller an agreed fee, the seller agrees to pay out agreed sums to the buyer if certain credit events occur in respect of a single or group of reference entities, for example if the reference entity fails to make a scheduled payment under its debt obligations or becomes subject to insolvency proceedings.

+United Kingdom

A contract between a credit protection seller (seller) and a credit protection buyer (buyer) where, in consideration of the buyer paying the seller an agreed fee, the seller agrees to pay out an agreed sum to the buyer if certain default events occur in respect of a third party's (or group of third parties') debt obligations.

+ credit default swap

CDS

credit default swap (CDS)

USA

A type of credit derivative used to manage or transfer credit risk exposure or for speculative investment purposes. Under a standard credit default swap, the credit protection buyer purchases credit protection from the credit protection seller on a pre-agreed aggregate amount of credit risk exposure (the notional amount) to a reference entity. In return for the credit protection provided by the credit default swap, the credit protection buyer pays an agreed fee (typically monthly or quarterly) to the credit protection seller. Generally, if a credit event involving the reference entity occurs during the term of the credit default swap, the credit protection seller pays an agreed amount to the credit protection buyer.