Markit and Creditex, in partnership with 14 credit derivative dealers, have conducted a credit event auction to facilitate the settlement of credit derivative trades referencing the senior debt of Landsbanki Islands in Europe's first ever credit event auction.

The auction was conducted in accordance with the International Swaps and Derivatives Association's 2008 Landsbanki CDS Protocol. Markit and Creditex are the official administrators of credit event auctions.

The credit event auction enabled market participants to cash settle credit derivative transactions, with dealers submitting orders electronically on the Creditex platform and the auction submissions delivered electronically to Markit, which calculates and verifies the results.

At 2:00 p.m. GMT on Tuesday, the final price for Landsbanki senior debt for the purpose of settling credit derivative transactions was determined to be 1.25 per cent, reflecting the collapse of the Icelandic bank and its takeover by the country's government. A subsequent auction to determine the final price for Landsbanki subordinated debt produced a price of 0.125 per cent.

Creditex and Markit will conduct further credit event auctions this week to facilitate the settlement of CDS contracts referencing Iceland's two other collapsed banks, Glitnir Banki on November 5 and Kaupþing Banki on November 6.

The credit event auction process was launched in 2005 by Markit and Creditex in collaboration with the ISDA and major credit derivative dealers to facilitate the settlement of credit derivative contracts in the event of a corporate default.

Auctions have been held to facilitate settlement of credit derivative trades referencing Washington Mutual, Lehman Brothers Holdings, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Tembec Industries, Quebecor World, Movie Gallery, Collins & Aikman, Delta Air Lines, Northwest Airlines, Delphi Corporation, Calpine Corporation, Dana Corporation and Dura.

Markit has more than 1,000 employees in Europe, North America and the Asia-Pacific region and provides services to more than 1,000 financial institutions.

Creditex, a wholly-owned subsidiary of IntercontinentalExchange, specialises in the execution and processing of credit derivatives, operating a hybrid model of voice and electronic execution, and was the first to launch electronic trading for credit default swaps in 2004. The firm's operating subsidiaries T-Zero and Q-Wixx provide additional electronic processing and execution services for CDSs.


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