A group representing dealers in credit default swaps decided Friday that Greek's bond swap constitutes a "credit event" that entitles holders of Greek credit default swaps to compensation.
The "yes" vote by the International Swaps and Derivatives Association triggers roughly $3.2 billion in CDS, which are insurance policies that pay out if a bond issuer defaults. That amount is actually much smaller than many had feared.
The decision was widely expected, and stocks were slightly down after the announcement.
Greece pushed through a bond swap deal on Friday, forcing bond holders to take a significant "haircut" on the return of their money. The swap was approved by about 84 percent of the holders, and Greece is moving to activate a rule forcing the rest of the bondholders to go along with the deal.
The triggering of that rule, known as the Collective Action Clause, is what prompted the ISDA to decide that Greece has created a "credit event."
“There’s three types of credit events as defined by ISDA,” said Gavan Nolan, Credit Analyst at Markit. “There’s a bankruptcy, a failure to pay and a restructuring.”
“What we’re talking about here with Greece is a restructuring," he told CNBC. "A request is made to the ISDA Determinations Committee—which is the arbiter of whether a credit event has occurred—and they have to agree whether or not it is a credit event.”
Out of the 15 members of the ISDA committee, 80 percent had to agree.
The net volume of CDS on Greece now stands at $3.2 billion, according to the Depository Trust & Clearing Corporation, which holds data on credit default swap contracts.
“It’s peanuts really compared to the government bond market," said Nolan. "So I think it’s sometimes overplayed as to how important it is.”