The Isda Determinations Committee has already declared that the expropriation of the subordinated debt of the bank was a restructuring credit event, and that there might be some auctions to determine payouts under the swaps. But it looks like that result of the auctions could prove a bit farcical, with buyers of protection walking away with very little compensation for the total loss experienced by subordinated debt holders.

In Part 1 of our overview of the study, FT Alphaville gave a brief refresher on how auctions work as well as the intuition behind the source of the potentially in-built bias in credit event auctions. Here we get a bit more into the guts of the paper, describing some of its exact findings. We also review some of the descriptive statistics of their dataset.

That was from Isda’a media.comment blog, in an entry posted on Wednesday. Excellent timing really, because FT Alphaville has a view to offer on credit event auctions.

This means that the maximum potential payout to credit default swap protection buyers, given that the final price in the auction was 21.5, was $2.4bn — not $2.5bn, as was widely reported.

The final price for Greek bonds was set at 21.5, meaning that every buyer of $10m CDS protection on a default of the Hellenic Republic can expect a payout of $7.85m cash. Full results here and this is the headline:

That $3.2bn has been the amount that’s been reported far and wide — including by us on several occasions — and it isn’t correct, and we want to own up.

Furthermore, the “restructuring” in “sovereign restructuring” means that Greece CDS contracts might not do us the courtesy of quietly being closed out and dying, even though a credit event has officially been declared by the Isda Determinations Committee last Friday.

Which means it really is worth knowing how the payouts will be derived. In short though, they will be determined by the results of an auction to find the recovery price of old Greek bonds. This particular auction promises to be extra exciting because Greek bonds are a rather diverse bunch of assets. Much more on this shortly.

There’s a bit of an oddity in the pool of CDS trades on Greece. To understand it, we need to explain a bit to you about credit events, auctions, and the trading conventions on them. What it boils down to, is that it looks like someone booked some trades that go against the norm.