Credit Events often make the headlines in the CDS market, for good or ill. But the ISDA Determinations Committee also make other decisions, most often on Succession Events. These are typically straightforward determinations resulting from corporate actions such as mergers and acquisitions. In short, they are part and parcel of a CDS market that in the vast majority of cases functions efficiently in the background, contrary to what some of the more hysterical commentators in the press would have you believe.

But occasionally a succession event occurs that merits closer examination. A recent case is the question put to the DC on Royal Bank of Scotland plc (RBS plc) in May.  Due to ring fencing legislation, all major UK banks must separate their retail banking operations from investment banking and non-EEA banking activities by January 1 2019. There are a myriad of ways that this separation could be enacted, but as part of the ringfencing procedure RBS chose to transfer its covered bond programme from RBS plc to National Westminster Bank PLC (NatWest Bank PLC). It also renamed RBS plc NatWest Markets Plc. The latter entity will be non-ringfenced – it is essentially the investment bank – while NatWest Bank will be ringfenced. The deposit taking entity will be “protected” from the risk-taking activities of the investment bank.