The Role Of CDS In Mitigating Bankcruptcy Risk And How It Correlates With Legal Process In Indonesia

Credit Default Swaps (CDS) are derivative financial instruments that can be used to mitigate bankruptcy risk. In the context of the bankruptcy legal process in Indonesia. One of the main roles of CDS is as a tool for risk management (Rushdi, 2021). By using CDS, investors or creditors can protect themselves from the risk of default by the guaranteed party (reference entity). In the Indonesian context, where business and bankruptcy risks can be significant, CDS provides a way for market participants to manage these risks. 

CDSs provide financial protection to their holders if the secured entity goes bankrupt (Perkasa, 2020). Thus, CDS can help reduce the negative impact of bankruptcy on an investment portfolio or creditor position. This has significant implications in the context of bankruptcy law in Indonesia, where protection against bankruptcy risk can be a priority for market participants (H.-Y. Chen & Chen, 2023).
 
Although CDS can help mitigate bankruptcy risk, its correlation with the bankruptcy legal process in Indonesia can be complex. When a company files for bankruptcy, CDS holders may have conflicting interests with bondholders or other creditors (Y. Chen & Xing, 2022). Settlement of CDS claims in bankruptcy proceedings may involve negotiations, disputes, or court settlements, which can complicate the bankruptcy process. The use of CDS can also affect the transparency and stability of financial markets in Indonesia. In some cases, speculation or excessive use of CDS can worsen the financial situation of the covered entity and affect overall market stability. This may require regulatory intervention or further monitoring of the CDS market (Clark et al., 2023)
 
Bankruptcy law regulations in Indonesia may also affect the protection of investors and market participants involved in CDS trading. This protection may include legal aspects governing transparency, market integrity, and fair treatment for all parties involved (Simonyan & Bayraktar, 2023a). Thus, although Credit Default Swaps (CDS) can be used as a tool to mitigate bankruptcy risk, their correlation with the bankruptcy legal process in Indonesia needs to be considered carefully. The legal and practical implications of using CDS in the context of bankruptcy law can affect the various parties involved, including investors, creditors, and regulators.