(a) The field 2.24 ‘Delivery Type’ allows for the values“C” (‘Cash’), “P” (‘Physical’) and “O” (‘Optional for counterparty or when determined by a third party’). How should a counterparty report the field ‘Delivery type’ for credit derivatives, in particular in the case of credit event auction?

TR Answer 58:

(a) Auctions are organised, and counterparties may subscribe to it only once a given credit event oc-curs. Thus, at the time of concluding the derivative it is not known whether the counterparties would participate in an auction. Furthermore, the credit protection buyer/seller may subscribe to the credit event auction individually, meaning that not necessarily both counterparties to the derivative would participate in the auction.

While the underlying instruments can be sold and physically delivered in the auction, the actual credit derivative would be cash-settled (as one counterparty, protection buyer, would receive from the other counterparty the cash compensation for the non-retrievable part of the underlying instru-ments and they would not have exchanged the underlying).

Therefore, the counterparties should report “C” (‘Cash’) in the field ‘Delivery type’ for credit deriva-tives that are cash-settled, including where one or both counterparties subscribe to a credit event auction.

For the avoidance of doubt, the counterparties should report “P” (‘Physical’) in the case of physical delivery of the underlying of the credit derivative from the counterparty that is protection buyer to the other counterparty.