A Transactional Approach, Third Edition
Featuring updated chapters, this third edition of Practical Derivatives: A Transactional Approach shows how derivatives are used in a variety of transactions, how the documentation works, and why boards need to be aware of the derivatives market.
Featuring updated chapters, this third edition of Practical Derivatives: A Transactional Approach shows how derivatives are used in a variety of transactions, how the documentation works, and why boards need to be aware of the derivatives market. It also analyses the impact of the recent regulatory changes on derivatives transactions and related documentation. With contributions from leading law firms, investment firms and academics, this accessible book takes a transactional approach and features coverage of product innovations.
This latest edition includes chapters on established markets such as equity and energy derivatives, but it also discusses the expansion of derivatives into new markets such as credit risk, weather risk and property. It features topical analysis on corporate governance and directors' duties; it includes an overview of the documentation produced by the International Swaps and Derivatives Association, the International Capital Markets Association and the German banking association; and it discusses related issues such as close-out netting. This edition would not be complete without an analysis of the recent derivatives regulation, and the transactional documentation that helps to implement the new rules.
Whether you are at a bank or financial institution or from a company or organisation looking to invest or manage your risk, this title will provide you with practical tools for using derivatives in your business.
Table of Contents
|Table of contents||4|
|Preface Edmund Parker Marcin Perzanowski Mayer Brown||6|
|Corporate governance and derivatives end users Paul Ali University of Melbourne||8|
|Regulation of OTC derivatives Ruth Frederick Senior legal counsel||26|
|Close-out netting Kunel Tanna Mayer Brown||80|
|Overview of industry standard documentation Guy Usher Fieldfisher||106|
|Introduction to German derivatives documentation Patrick Scholl Mayer Brown||126|
|Documentation for cleared OTC derivatives Patrick Scholl Mayer Brown||138|
|Designing derivatives structures John D Finnerty Rachael W Park AlixPartners LLP||156|
|Introduction to commodity derivatives Edmund Parker Marcin Perzanowski Mayer Brown||178|
|Overview of the 2005 ISDA Commodity Definitions Edmund Parker Marcin Perzanowski Mayer Brown||206|
|Emissions trading Edmund Parker Mayer Brown||252|
|Weather derivatives Paul O Oranika Africa Business World||280|
|Energy derivatives and hedging strategies Christopher Clancy Cyriel de Jong KYOS Energy Consulting||290|
|Introduction to equity derivatives Edmund Parker Marcin Perzanowski Mayer Brown||304|
|Overview of the 2002 ISDA Equity Derivatives Definitions Edmund Parker Marcin Perzanowski Mayer Brown||340|
|Introduction to credit derivatives Edmund Parker Mayer Brown||410|
|Overview of the 2014 ISDA Credit Derivatives Definitions Edmund Parker Mayer Brown||454|
|Interest rate derivatives Natalie Ashford Vincent KP Sum Mayer Brown||528|
|FX derivatives David Johnson First Abu Dhabi Bank PJSC||538|
|Property derivatives Edmund Parker Mayer Brown Emmett Peters Addleshaw Goddard LLP||566|
|About the authors||590|
Here it is, the third and latest edition of ‘Practical Derivatives’, from Globe Law and Business. Having gone through three editions, this book has acquired a well-deserved reputation as an authoritative source of information and advice on the plus points and pitfalls of derivatives – and, their use in a variety of company transactions.
Richmond Green Chambers
Practical Derivatives' is a must have for lawyers to under-stand the post-2009 rules-of-the-road and protect their client’s interests when negotiating and documenting derivatives transactions.
Michael S Sackheim
Sidley Austin LLP
The many different essays within this collection are well co-ordinated and integrated; they form a coherent treatise that is definitely user-friendly and easy to navigate. It will definitely be a great help to practitioners as well as policy-makers and specialised academic researchers.
Dr Vincenzo Bavoso
School of Law, University of Manchester
Associate professor, Melbourne Law School, University of Melbourne
Paul Ali is an associate professor in Melbourne Law School, University of Melbourne, and a member of Melbourne Law School’s Centre for Corporate Law and Securities Regulation. Dr Ali has published widely on banking and finance law. He has worked in the banking and finance and corporate groups of two leading Australian law firms. He has also worked in the securitisation team of a major US bank, and has been a principal of a private capital firm and a consultant with a corporate governance advisory firm.
Registered foreign lawyer, Mayer Brown
Natalie Ashford is a registered foreign lawyer (England and Wales) in the Hong Kong office of Mayer Brown JSM’s finance practice. Prior to joining Mayer Brown in Hong Kong, Ms Ashford worked in the firm’s London finance practice. She also spent six months on secondment to Mayer Brown’s New York finance practice and a further six months on secondment to a global bank in Hong Kong.
Ms Ashford focuses on all areas of banking and finance law and has gained experience in a range of complex, cross-border transactions including real estate and project financings, and securitisations. She has acted for major banks and financial institutions, as well as private equity funds and private companies.
Managing director, KYOS Energy Consulting North America
Christopher Clancy is managing director of KYOS Energy Consulting North America. He has worked as a senior quantitative analyst at NextEra Energy in Houston, Texas and Juno Beach, Florida. Previous to that, he worked in London as a quantitative analyst with Entergy-Koch Trading Europe. Mr Clancy has over 10 years of applied experience in the European and North American gas, power and weather markets. In addition, he was co-awarded a wind energy risk management patent in the United Kingdom, the United States and Australia. Mr Clancy has a graduate degree in economics from Emory University in Atlanta, Georgia.
* This biography remains unchanged since the last edition.
Cyriel de Jong
Director, KYOS Energy Consulting
Cyriel de Jong is founder and director at KYOS Energy Consulting, located in Haarlem, the Netherlands. He has been working as an adviser for the energy industry since 2001. Until 2006, he combined this with a position at Erasmus University Rotterdam.
He completed his MSc in Econometrics at Maastricht University, and finished his PhD at Erasmus University Rotterdam in 2003. His research focused on derivatives pricing and market volatility, with publications in the Journal of Business and the Journal of Derivatives. KYOS provides quality pricing and risk management software to the energy sector as well as to companies active in other commodity markets. For the major utility companies in Europe, Cyriel de Jong has led a great number of projects related to energy market valuation, risk management, trading strategies and investment analysis. KYOS’s financial models to value energy assets and contracts are based on solid stochastic optimisation methods and Monte Carlo simulation techniques. The applications are widely used by utility companies, investment banks, commodity trading houses, industrial companies, regulators and policy makers.
John D Finnerty
Managing director, AlixPartners LLP
John D Finnerty is a managing director at AlixPartners specialising in valuation and hedging. He has developed innovative derivatives models for calculating a lack of marketability discount and valuing employee stock options, convertible debt and venture capital preferred stock.
Mr Finnerty is also professor of finance at Fordham University’s Gabelli School of Business and was founding director of the master of science in quantitative finance programme. He has written 15 books and over 100 articles. He is a former editor of Financial Management and FMA Online.
Mr Finnerty received a PhD in operations research from Naval Postgraduate School, an MA in economics from Cambridge University and a BA in mathematics from Williams College. He was inducted into the Fixed Income Analysts Society Hall of Fame in 2011.
Senior legal counsel
Ruth Frederick is a senior lawyer based, over the past five years, in the London office of a global asset management firm. Ruth supports the UK Fixed Income and Equity Divisions advising on a broad range of matters including European and cross-border regulation, derivatives, trading and investment compliance.
Prior to working in asset management, Ruth worked at Sidley Austin LLP in London where she acted for banks and financial institutions on a range of cross-border structured finance transactions with a particular emphasis on credit derivatives.
Ruth also has extensive experience in debt capital markets, cash and synthetic securitisations, general banking, insolvency and restructurings and cross-border asset backed financings. Ruth was seconded to Credit Suisse, London where she advised on restructurings, vendor financing transactions and emerging market credit linked trades. Ruth has lived and worked in Germany and Singapore and holds a BSc in Computer Science.
Associate general counsel – treasury and global markets, First Abu Dhabi Bank PJSC
David Johnson is a derivatives and structured finance lawyer and is currently the senior legal counsel responsible for supporting the treasury and global markets business at First Abu Dhabi Bank PJSC.
Mr Johnson’s diverse experience developed while working on a range of structured finance transactions. He specialises in derivatives, securitisation and secured lending transactions.
He is a frequent contributor to legal publications and has written on a variety of derivatives topics, including articles discussing repurchasing transactions, closing-out International Swaps and Derivatives Association Inc (ISDA) Master Agreements, the 2014 ISDA Credit Derivatives Definitions and repackaging transactions.
Paul O Oranika
Chief executive officer, Africa Business World
Paul Oranika is the founder and chief executive officer of Africa Business World, an online business database and news services company based in Atlanta, Georgia. For over eight years, Mr Oranika taught political science at Grand Canyon University in Phoenix, Arizona and public administration at Central Michigan University in Mt Pleasant, Michigan.
He is the author of five books, including Nigeria: One Nation, Two Systems; Hedge Funds: Investment Vehicles for the Global Economy; and Stock Market Trading: Beginner’s Guide for Profitable Trading.
Rachael W Park
Director, AlixPartners LLP
Rachael W Park is a director in AlixPartners’ financial advisory services practice based in New York. She holds an MBA in finance and information systems and a Master of Science in quantitative finance. She has over 15 years of business experience, including eight years of economic valuation and litigation support experience.
Rachael has been involved in a wide variety of finance and economic projects, such as business valuation, securities valuation, solvency analysis, credit analysis and quantitative analysis. She specialises in valuing securities, including equity derivatives, fixed-income derivatives, structured finance products, restricted stocks, hybrid securities and other complex derivative instruments.
Rachael has been engaged in a number of litigation matters, such as securities valuation disputes, fair market value disputes, 10b-5 and Section 11 securities fraud litigation and tax fraud litigation.
Global head, Derivatives and Structured Products Practice, Mayer Brown
Edmund (“Ed”) Parker is global head of Mayer Brown’s Derivatives and Structured Products practice, head of the firm’s Banking and Finance practice in London, and serves on Mayer Brown’s Partnership Board. Consistently ranked as a key individual and receiving strong market praise from the legal directories, the most recent sources say that Ed “enjoys a reputation as one of the City’s leading lawyers”. Clients appreciate his “unrivalled breadth and depth of knowledge across all asset classes” and regard him as “one of the lawyers who knows the most about derivatives – he wrote the book on them” (Chambers UK 2015). Ed is also described as “very user-friendly and very easy to deal with”, with the same source adding that “he really knows his stuff” and is “a leader in his field”. Ed was nominated for Derivatives Lawyer of the Year at the 2014 Global Capital Derivatives Awards.
Ed is the industry’s most widely published lawyer on derivatives matters, with his views regularly sought by the press and on television.
In addition to this book, his written works include four derivatives books, consisting of: as sole author, Credit Derivatives: Understanding and Working with the 2014 ISDA Credit Derivatives Definitions and Credit Derivatives: Documenting and Understanding Credit Derivative Products; as sole editor, Equity Derivatives: Documenting and Understanding Equity Derivative Products; and as coeditor, Commodity Derivatives: Documenting and Understanding Commodity Derivative Products.
Of counsel, Mayer Brown
Marcin Perzanowski is an of counsel in the Derivatives and Structured Products Group in the London office of Mayer Brown. He has extensive experience in advising on a broad range of derivatives and structured finance transactions for banks, corporates, funds, pension schemes and insurance companies. Marcin regularly advises his clients in relation to financings structured as total return swaps, repos, securities loans and margin loans, with underlying in the form of shares, bonds and loans, and with various types of custody and collateralisation structures. He often works on investment products, such as credit linked notes or instruments referencing proprietary indices, and has advised on a number of complex derivatives transactions across several asset classes (including equity derivatives, credit derivatives, commodities, as well as FX and interest rates derivatives).
Marcin has been described by his clients as “a star in the making”, “phenomenally able” and “clearly on the partnership trail”, with another source adding that they were “pleased with [his] intellect and responsiveness”. In addition to this book, his written works include: several chapters in Equity Derivatives: Documenting and Understanding Equity Derivative Products, two chapters in Sovereign Debt and Debt Restructuring, and he also co-edited Commodity Derivatives: Documenting and Understanding Commodity Derivative Products.
Partner, Addleshaw Goddard LLP
Emmett Peters has been a partner in Addleshaw Goddard’s real estate division since 2005 and since 2014 has led the firm’s London real estate team. Emmett has experience in acquisitions, disposals, debt funding and asset management as well as advising on property holding structures both on and offshore.
Emmett acts for investors, including institutions and private companies, and developers on a wide variety of matters. Emmett also acts for a number of banks lending both development and acquisition finance and has considerable experience in funding ground rent portfolios.
Addleshaw Goddard is an international law firm committed to delivering outstanding value and providing innovative commercial solutions to its clients’ most demanding and complex legal issues. As one of the firm’s key areas of expertise, real estate is at the heart of its operations.
Partner, Mayer Brown
Patrick Scholl is a partner in the Frankfurt office of Mayer Brown. He has over 10 years of experience in banking and finance practice. Dr Scholl advises on all aspects of debt capital markets products, over-the-counter (OTC) derivatives, all kinds of credit derivative and synthetic risk transfer, as well as repackaging. Dr Scholl’s recent work also focuses on a number of significant issues currently affecting the OTC derivatives markets, the testing of key derivatives principles and the clearing of financial products through central counterparties, as well as on the implementation of the EU derivatives regulation (known as EMIR).
Vincent KP Sum
Partner, Mayer Brown
Vincent KP Sum is a partner of Mayer Brown JSM. His practice focuses on complex capital markets matters, including structured products, securitisations, derivatives, retail and non-retail funds, secured lending and financing, and debt capital markets matters. He advises underwriters, arrangers, portfolio managers, issuers, trustees and institutional investors. He is qualified to practise in Hong Kong, New York, and England and Wales. Mr Sum has been ranked as a leading individual in “Capital Markets: Derivatives & Structured Products and Securitisation” in both Chambers Asia Pacific and Chambers Global (2013–2016). He was accredited as a recommended lawyer in “Structured Finance and Securitisation (Hong Kong)” in The Legal 500 Asia Pacific (2013–2016) and a leading lawyer in both “Capital Markets: Derivatives” and “Capital Markets: Structured Finance and Securitisation (Hong Kong)” in IFLR1000 (2013–2016).
Associate, Mayer Brown
Kunel Tanna is an associate in the Derivatives and Structured Products group of Mayer Brown’s London office, having qualified in March 2014. Kunel acts for some of the world’s leading financial institutions as well as multilateral organisations, hedge funds, pension schemes and corporates. He advises on a wide range of capital markets and structured finance transactions, with a particular focus on complex, cross-border derivatives, repurchase transactions, risk hedging transactions, prime brokerage, secured custody arrangements and structured lending transactions. Kunel also advises on the regulatory aspects of derivatives transactions, in particular under the European Markets Infrastructure Regulation. Kunel has studied and worked in the law, focusing on banking and finance law, in London, Paris and Hong Kong. He has also been seconded to the legal team of one of the world’s largest investment banks to advise on and manage their structured notes programmes.
Head of derivatives and structured finance, Fieldfisher
Guy Usher heads up the derivatives and structured finance group at Fieldfisher, where he became a partner in 1997. He has specialised in derivatives for over 25 years and advises global investment banks, broker-dealers, asset managers, hedge funds and corporate and other end users. He advises on putting derivatives into structured financings, as well as on specific products such as credit, equity, commodity and property derivatives. He also provides project advice on reorganisations, netting and collateral.
Mr Usher frequently writes and speaks on derivatives and co-authors the highly regarded Fieldfisher publication Summary of ISDA Close-out Netting Opinions. He is also an author and consulting editor of Repo and Stock Lending: A Practitioner’s Guide (Globe Law and Business).