A credit derivative in which one of the counterparties is the reference entity itself. It involves the transfer of credit risk associated with a specified reference entity, with the reference entity being one of the counterparties to the contract. Under such a credit derivative contract, a counterparty’s right to the full repayment of a sum paid prior to its insolvency is contingent on it remaining solvent. Companies enter into self-referenced credit derivatives transactions for multiple reasons, including regulatory arbitrage.
Examples of self-referenced credit derivatives include self-referenced swaps, self-referenced credit-linked notes, etc.
