Recognised by Risk as 'a watershed in the development of the credit market', the Credit Event Fixings are a joint Creditex / Markit initiative, run in close cooperation with major credit derivatives dealers.
The Credit Event Fixings are auctions to determine cash settlement prices for credit derivative index trades following a corporate bankruptcy, and are designed to ensure a transparent and fair price representative of the trading market level, for use in the settlement of credit derivative index trades.
During a Credit Event Fixing, dealers place executable orders on the Creditex platform for obligations of a particular company that has undergone a credit event, such as filing for bankruptcy. A market standard methodology is used to simultaneously execute these orders and generate a final cash settlement price for eligible credit derivative contracts referencing this entity. Markit verifies the integrity of the process and calculates the final price which it publishes to a freely accessible web page located at www.creditfixings.com.
In 2005, this initiative was selected to settle trades referencing the defaulted U.S companies Collins & Aikman, Delta Air Lines, Northwest Airlines, Delphi and Calpine.
The Fixings are credited with preventing potential settlement problems, as highlighted by Tim Frost, Director of Cairn Capital, who said: "The market would have ground to a halt had the credit fixings initiative not established such a visible and transparent process for settlement."
The Credit Event Fixings were born from the Tradeable Credit Fixings which launched in March 2005 for the three most liquid iTraxx indices: the 5yr Europe, HiVol and Crossover indices via a weekly online auction on the Creditex platform. Dealers submit executable two-way prices which are verified by Markit. The Fixings have spurred the development of second generation credit derivative products which depend on a market-supported reference rate.
Kevin Gould, Executive Vice President of Markit and Head of Data Products and Analytics, said: "The Fixings are evidence of the importance the market accords efficient cash settlement of credit derivative trades. We are happy to have been able to help the market tackle last year's credit events while helping prevent undue pressure on dealers' trade processing capabilities, and we're delighted that Risk has recognised our efforts over the last year."
Mazy Dar, Head of Strategy and Electronic Platforms at Creditex, said: "The Credit Event Fixings are the result of an unprecedented cooperative effort with the credit derivatives dealer community. We are very pleased to have worked closely with the major banks on this important initiative and we are delighted that it has been recognized as Risk's Trading Initiative of the Year. Credit Event Fixings will continue to play a crucial role in the credit derivatives market going forward."