Legal Risk and Regulations
An invaluable guide to understanding how financial derivatives are regulated in the UK, US and Australia, Derivatives Regulation and Legal Risk: Managing Uncertainty in Derivatives Transactions provides a detailed account of the rules, principles and regulation that govern derivatives contracts. Recent litigation has shown that legal risk and legal uncertainty continue to be of both operational and practical significance in contracting, transacting and documenting financial derivatives. This book examines in detail the key market practices and standard documentation that can be used by practitioners to minimise their legal risk. In particular, the book examines the following:
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What are the implications for market participants of the threat of their transaction being characterised as against gaming and bucket shop laws?
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What happens if a transaction is declared void? How do you protect payments and recover compound interest?
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How to enforce your transaction, including choice of jurisdiction and applicable bankruptcy laws
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How to structure a credit derivatives transaction and avoid insurance laws
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How to negotiate uncertain rules and regulation
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How to avoid customer litigation
The book includes practical tips and checklists to avoid legal traps and minimise legal uncertainties, and a glossary of key legal terms.
Essential reading for anyone entering into or arranging derivatives transactions with sovereigns, municipalities and regional authorities, insurance companies, pension funds, or unit trusts, mutual funds and fund managers.
Table of Contents
Derivatives Regulation and Legal Risk: Managing Uncertainty in
Derivatives Transactions
Contents
About the author
Preface
Chapter 1: Introduction
Overview
What is legal risk?
The consequences of legal risk
The legal risks defined and examined by the book
Null and void contracts
Protecting payments and interest
Netting and bankruptcy
Derivatives at risk
Review of regulation
New derivatives regulation
Legal risk and legal uncertainty persist
What can be done?
Chapter 2: Understanding financial derivatives
Introduction
Derivatives: what are they?
The main types of derivatives: over-the-counter versus exchange-traded
Financial derivatives in context
Market microstructure
Conclusion
Chapter 3: Costing legal risk and legal uncertainty
Introduction
Implications for practitioners
Direct costs
Indirect costs
On-going review of the law
Suggestions: what to do?
Conclusion
Chapter 4: Managing legal risk
Introduction
Practices and procedures for managing legal risk
Master Agreements
Counsel opinions
Netting arrangements
Background cross-checking of counterparties
Compliance issues: knowing your client
Market solutions
Conclusion
Chapter 5: Removing gaming risk
Introduction
Background: the how and why of gaming risk
The current position
Implications for market practitioners
Practical suggestions: what to do?
Conclusion
Chapter 6: Structuring credit derivatives
Introduction
What are credit derivatives?
What is credit risk?
Background: the how and why to insurance risk
The current position
Implications for market practitioners
Suggestions: what to do?
Conclusion
Chapter 7: Contracting with legal capacity
Introduction
What is ultra vires?
Background: the how and why to ultra vires risk?
Criticism of the Hazell decision
Current position
Implications for market practitioners
The effect on contract enforceability
Additional problems with trusts
Suggestions: what to do?
Conclusion
Chapter 8: Protecting payments and recovering interest
Introduction
Background: the how and why of payments and interest risk
Case study
Current position
DERIVATIVES REGULATION AND LEGAL RISK
Implications for practitioners
Suggestions: what to do?
Conclusion
Chapter 9: Avoiding customer litigation
Introduction
Background: the how and why of litigation risk
The current position
Implications for market practitioners
Suggestions: what to do?
Conclusion
Chapter 10: Enforcing netting arrangements
Introduction
Background: the how and why to netting risk
Current position
International initiatives: UNCITRAL model law on
crossborder insolvency
Application of UNCITRAL Model Law in the United Kingdom,
the United States and Australia
EU: EC Regulation No 44/2001 on Crossborder Jurisdiction
Choice of law and jurisdiction clauses
Implications for market practitioners
Suggestions: what to do?
Conclusion
Chapter 11: Negotiating uncertain rules and regulation
Introduction
The background: the how and why of uncertain rules and regulation
Current position
Suggestions: what to do?
Conclusion
Chapter 12: Resolving disputes
Introduction
The legal risks that remain
Sources of disputes
Alternative methods for resolving disputes
Lobbying for reform
Conclusion
Table of abbreviations
Glossary
Related Titles
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