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Settlement
The process through which the protection buyer in a credit derivative compensates the protection seller following a credit event. See physical settlement, cash settlement. Physical is the standard form of credit event settlement for credit default swaps. However, cash settlement is frequently used in the documentation for synthetic CDOs. Counterparties also frequently elect to cash-settle. For example, in all defaults affecting since Collins & Aikman in May 2005, most index counterparties have opted for cash settlement using the final price determined by a credit event fixing.
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