Credit Default Swaps (CDS) and Credit Default Swap Index (CDX) Positions in Position FIles
CDS and CDX positions relating to sovereign debt should be provided in your position file to ensure correctness and as such, we have prepared this Help Centre article to show how these different Credit Default structures should be set up.
For CDS, currently our EU Short Selling Regulation (SSR) service is only concerned with CDS’ with sovereign bond underliers or which reference sovereign debt (although you may wish to include CDS on Corporate Bonds for future-proofing should they be included in Shareholding Disclosure in future regulatory changes).
We understand that it is often the case that the relevant underlier (reference instrument) to a Sovereign CDS is not in fact a single bond but the sovereign debt of an issuer as a whole. In order for FundApps to calculate the appropriate notional exposure to a sovereign issuer, we require holders to provide a specific reference sovereign bond instrument as underlier to the CDS. When sovereign CDS are held which don’t reference a specific bond, we recommend that holders choose any bond issuance from the relevant sovereign issuer. Our SSR Bond rules for sovereign debt exposure will not ultimately refer to any issuance-specific properties like the ISIN or Maturity date, but requires a bond instrument underlying so our rules can refer to the IssuerName and the fact that the issuer is sovereign (IsGovernmentBacked).
FundApps accounts for a position's notional exposure to the debt of a sovereign issuer as a whole by using the IssuerName property from underlying reference bond to match to the TotalDebtOutstanding figure provided by ESMA. From here, the system will calculate the PercentEUDebtOutstanding using this value. Please see the section “Total Debt Outstanding” from our Help Centre article on this topic to ensure that we can automate the provision of the denominator in such cases.
When providing a quantity for the parent instruments of a CDX (which is a CDS), be sure to use a negative quantity on the asset for protection buys (which is an effective short position) and a positive quantity for protection sells (which is an effective long position).
Please see the below example of how a Sovereign CDS should be structured in a position file:
A CDS on a Corporate Bond (which are out of scope currently and therefore not required to be delivered) would be structured in exactly the same way, with the component details being those of the Corporate issuer you wish to reflect exposure to.
Credit Default Index
You may also wish to represent a CDS on a CDX (a benchmark index whose components are credit default swaps) in your position file. In order to do so, there are a number of data points to provide.
Firstly you would need to provide all of the required properties for the CDS you have (or other derivative on CDX). Next, you will need to provide the index components for the CDS Index (the CDX), which are each a CDS instrument. In the position file, you will need to build an index listing the constituent CDS positions within the index with their weighing. The structure can be represented as follows: CDS > Index (with some number of CDS components).
Finally, you will need to provide the component Sovereign Bond that underlies each of the CDS’ instruments included in the index. The FundApps system requires this information to determine to whom you have exposure and to source TotalDebtOustanding.
An example of what this would look like in a position file can be found below:
If you have any questions on including these positions in your position file, please contact email@example.com