In December 2023, ISDA commissioned an independent review of the CDS Determinations Committees (DCs) by Linklaters LLP. Linklaters’ report from that review is here. The Linklaters’ report identified several key issues with respect to the DCs and proposed solutions for addressing those issues. ISDA is seeking feedback from the CDS market participants on whether they support moving forward with the implementation of such proposals or if they have any substantial objections to the proposals.

ISDA has commissioned Boston Consulting Group (BCG) to run this public, market-wide consultation on the issues and solutions identified in the report. To take part in the consultation and support or object the proposed solutions, please visit the BCG-Expand website at: https://www.expandresearch.com/dc-review-consultation/

Link to recording of webinar summarizing report and consultation here.

Slides to webinar here.

Issues Consulted On

The following issues were identified as significant issues affecting market participants with regards to the DCs. The consultation asks how strongly you agree with the importance of these issues or if there are issues you feel should not be addressed in the immediate term.

1. Addressing Conflicts of Interest
2. Composition and Makeup of the Determinations Committees
3. Governance of the Determinations Committees
4. Representation and Transparency in the DC Process
5. Funding of the Determinations Committees

Proposed Solutions

The following solutions were proposed by Linklaters to address the above issues. The consultation asks whether market participants support the adoption of such a solution or object to implementing these solutions and the reasons for such objection.

1. 1. Addressing Conflicts of Interest
      1. Provide for the appointment of up to three independent members of the DCs (with one acting as DC chairman);
      2. Enhance the minimum requirements regarding DC members’ compliance procedures; and
      3. Permit the DCs, by a simple majority, to refer DC Questions to an independent panel for a decision.
   2. Composition and Makeup of the Determinations Committees
      1. The number of dealer members of the DCs is reduced to eight and the number of non-dealer members of the DCs is reduced to four (in addition to the CCPs and any independent members);
      2. The eligibility threshold to serve as a non-dealer DC Member is reduced;
      3. A non-dealer should be able to volunteer for membership of individual DCs, rather than having to join all the DCs; and
      4. The provisions relating to consultative dealer and non-dealer members are removed.
   3. Governance
      1. A separate governance body is established, with responsibility for overviewing the operation of the DCs (including reporting to market participants and CDS obtaining feedback from them) and making changes to the DC Rules from time to time (in lieu of the DCs).
      2. The governance body should have the ability to appoint independent auditors to audit DC members’ compliance procedures under the DC Rules.
   4. Representation and Transparency
      1. Eligible Market Participants are entitled to present statements of case within certain parameters;
         1. If you support this recommended solution, do you support requiring disclosure of the Eligible Market Participant making the statement or should it be solely the law firm making the statement on the behalf of an Eligible Market Participant?
      2. Any material step taken in the DC process (including any request to convene a DC, any statement of case submitted and any public information provided or obtained by the DC in connection with a DC Question) must be disclosed in the DC website as soon as is reasonably practical;
      3. The DCs and the DC Secretary are required to provide adequate reasons (stated on the DC website) for all material decisions they take.
   5. Funding
      1. Do you support a fee attaching to each CDS transaction (excluding trades for novations and compression) to fund the operations of the Determinations Committee and the other solutions for addressing the above issues?