“There's value to getting some clarity even if the ruling's no,” said Peter Tchir, founder of New York-based hedge fund TF Market Advisors. “It's a pretty big issue for what they're trying to do in other countries.”

It costs $7.3 million in advance and $100,000 annually to insure $10 million of Greek debt for five years, signaling a 95 percent probability of default within that time.

Political determination to avoid the stigma of a credit event has been waning as Greece struggles to meet the conditions of its latest 130 billion-euro ($170 billion) bailout. Standard & Poor's downgraded the nation to “selective default” on Feb. 27 because of the government's decision to retroactively insert CACs into bond terms.

While Greece is negotiating the biggest ever debt restructuring, the volume of credit-default swaps on the line has tumbled. The net amount of debt protected is no more than for some companies and represents less than one percent of the nation's bonds and loans outstanding.

Credit-default swaps on Greece now cover $3.25 billion of debt, down from about $6 billion last year, according to the Depository Trust & Clearing Corp. That compares with a swaps settlement of $5.2 billion on Lehman Brothers Holdings Inc. in 2008.

Counterparty Concern

Despite concerns at that time about a daisy chain of losses if counterparties failed to meet their commitments, the Lehman settlement and those of swaps guaranteeing debt of Fannie Mae and Freddie Mac were “orderly” and caused no major disruptions for the market, according to regulators.

A settlement on Greek swaps may bolster confidence in the $258 billion sovereign insurance market and also help boost the government bond market, Tchir said. Efforts to circumvent a trigger risk undermining credit markets.

“The relevance of sovereign CDS has been called into question, but they still have value,” said Georg Grodzki, head of credit research at Legal & General Plc in London.

Insurance payouts may still happen if Greece uses the collective action clauses its parliament introduced or if it fails to make a payment in future. If an event is declared, auctions will be held to set a recovery value on the bonds, and swaps sellers will pay buyers the difference between that and the face value of the debt.

Swaps on western European governments can pay out on a credit event triggered by failure to pay, restructuring or a moratorium on payments. Restructuring events are the most subjective and have been removed as a trigger event for U.S. companies.

A restructuring event can be caused by a reduction in principal or interest, postponement or deferral of payments or a change in the ranking or currency of obligations, according to ISDA rules. Any of these changes must result from deterioration in creditworthiness, apply to multiple investors and be binding on all holders.

The determinations committee that decides whether to trigger swaps consists of representatives from 15 dealers and investors. The group, which also includes Deutsche Bank AG and the world's biggest money manager BlackRock Inc., rules whether a credit event should be declared after a request is made by a market participant. The question on Greece was posed anonymously.

'Pain to Come'

“Technically the issue of the ECB subordinating other investors hasn't yet inflicted pain — just the threat of pain to come,” said Bill Blain, a strategist at Newedge Group in London.

A request on Irish swaps was rejected last year when ISDA's determinations committee ruled the International Monetary Fund's preferential creditor status in that nation's rescue didn't constitute subordination.

“Restructuring almost always causes confusion,” Tchir said. “The fact that it is a restructuring does leave it lot more subjective than it would be otherwise.”

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