Whenever I write about credit default swaps (CDS) on European sovereign debt I get asked the same question: Who decides?

That is, who decides whether a "haircut" triggers a payment under CDS contracts.

The answer is that the determination is made by a group called the International Swaps and Derivatives Association (ISDA), a trade group based in New York. It is made up of broker dealers, hedge-fund managers and other CDS market participants. Basically, it is dominated by big Wall Street firms.

The ISDA publishes a "master agreement" that is the form agreement for most CDS contracts. It also has a bunch of committees that determine whether or not a "credit event" — that is, something that triggers an insurance payout — has occurred. These committees are organized geographically. So, for Greek bonds it will be the EMEA (Europe, Middle East, Africa) committee that will decide whether a credit event will occur.

The ISDA just updated its Q&A on Greek sovereign debt to account for the latest developments in Europe.

What it said was: We'll wait and see.

From the ISDA document:

UPDATE OCTOBER 27: The determination of whether the euro zone deal with regard to Greece is a credit event under CDS documentation will be made by ISDA’s EMEA Determinations Committee when the proposal is formally signed, and if a market participant requests a ruling from the DC. Based on what we know, it appears from preliminary news reports that the bond restructuring is voluntary and not binding on all bondholders. As such, it does not appear to be likely that the restructuring will trigger payments under existing CDS contracts. In addition, it is important to note that the restructuring proposal is not yet at the stage at which the ISDA Determinations Committee would be likely to accept a request to determine whether a credit event has occurred.

Translation: If the restructuring is completely voluntary, then it won't trigger a credit event. That is, if bondholders who don't like the changes agreed to by European leaders can just hold on to their old bonds on their old terms, the ISDA won't consider it a credit event.

Questions? Comments? Email us at

Follow John on Twitter @ twitter.com/Carney

Follow NetNet on Twitter @ twitter.com/CNBCnetnet

Facebook us @ www.facebook.com/NetNetCNBC