CDS Protection Buyers Burnt Second Time by Corrupt ISDA — How Much Longer Until That Product and the Markets Around It Disappear?

Is the whole CDS market a game of chicken? And smoke & mirrors?

Buyers of CDS on the Greek government bonds had to fight against the ISDA which was claiming that the "voluntary hair-cut" creditors were getting was not a credit event, and now, the subordination of the sovereign debt of Spain seems to be falling under the same category. Who are these people kidding? Would you keep on buying insurance if every time you have an incident the insurer asked you to go and Zuck yourself? Well it seems like the path the CDS is on is a slippery slope and most likely the whole market will disappear during the deflation of the financial product Great Mania.

Via ZeroHedge:

And just as ISDA was starting to become somewhat credible again, we get this from Bloomberg:

• Spanish CDS Trigger Unlikely on Subordination, Says ISDA *Dow Jones

From Reuters:

Credit default swaps on Spain are unlikely to trigger as a result of the 100 billion euro bail-out of the country's banking system announced over the weekend, according to leading derivatives lawyers.

The European Stability Mechanism's senior creditor status has led to questions over whether a subordination credit event will be triggered upon Spain receiving loans from the permanent bailout fund. In contrast to the IMF's preferred creditor status, which is implicit rather than legally documented, the ESM's treaty actually specifies its seniority to other creditors - a clause that some analysts reckon could trigger CDS.

There have been subsequent reports that Spain's emergency loans may be funneled through the temporary bailout fund, the EFSF, before the ESM becomes into force in July to avoid a potential credit event. Such measures may prove unnecessary, though, as derivatives lawyers have cast doubt on the possibility of ESM rescue money triggering CDS.

"I can't see any basis on which this would constitute a subordination credit event as it doesn't change the terms of the claims held by the other creditors," said Simon Firth, a partner in the derivatives practice at Linklaters.

"It's actually impossible to have a restructuring credit event based subordination without something that affects the rights of existing bondholders. In the absence of some kind of agreement or change of law, then I don't see anything that will [do that]," said Firth.