Chris Crowley
October was the month that the credit event auction process was tested to its limits, with Lehman Brothers, Fannie and Freddie, and WaMu all undergoing settlement. Credit spoke to the strategy manager at Creditex to find out how the process bore up. Additional answers by Nishul Saperia, director of Markit
Q: Why are credit event auctions a good mechanism for pricing bonds in default?
A: The main benefit is the transparency of the methodology and the orders entered into the auction. This ensures a fair final result that has the confidence of market participants. The mechanism itself has two important benefits over either cash or physical settlement. Firstly it combines those parts of each existing settlement mechanism that the market in general considers beneficial, whilst looking to minimise the
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