Credit default swap


It is the most common credit derivative in foreign bond market. During the transaction of credit default swap, the buyer of default swap will periodically pay fees (referred to as credit default swap difference) for seller of default swap. In case of credit event (mainly the failure in liquidation by the bond subject), the buyer is entitled to deliver the bonds at nominal value to the seller so as to effectively evade credit risk.


During credit default swap, the buyer will pay certain fees for the seller in exchange for the seller’s credit protection over reference assets or reference entity, which will transfer the credit risk of bonds. Credit default swap has been developing fast in the advanced foreign financial market since 1990s for it is simple in definition and transaction and easy to be standardized.

Conditions for application

Customers who meet the stipulations of related policies

Trade Price

The actual trade price in this business is determined according to the instant actual trade price.


Company A has entered into the following agreement on credit default swap with the Bank:

Nominal principal: USD 10 million
Reference bonds: 5-year term bonds issued by CitiBank
Term: 5 years
Frequency for payment of credit default swap difference: every six months
Annual rate of credit default swap difference: 6%

After the transaction of credit default swap, Company A will pay 3% of credit default swap difference for the bank every six months:

Sum =USD 10 million × 6% ÷ 2 = USD 300 thousand

In case of credit event, including bankruptcy, failed debt payment, reorganization, refusal to liquidation, deferred payment, or accelerated maturity of bonds, etc, Company A has the right to deliver the bonds to the bank in the form of delivery settlement or cash delivery.

Application procedure

Consult relevant personnel of the Capital Department at the head office for details.