Day 1
Legal Risk Management of OTC Derivatives
Overview of the OTC Derivatives Market (L-1)
– OTC versus exchange traded derivatives
– Brief history of the OTC market
– Dealers, Endusers, and ISDA
– Products & OTC Derivative Examples
– Standard Documentation
Understanding the Risks of OTC Derivatives (L-2)
– Market Risk
– Credit Risk
– Legal Risk
– Systemic Risk
– Operational Risk and Rogue Traders
– Collateral Risk
– Country Risk
Understanding Officer and Director Risk
Management Responsibilities for Derivative
Operations
Risk Management and Documenting the Trade (L-3)
– Potential Risks
– Trade capture
– STP versus manual processing
– Risk and errors in confirmation process
– Master Confirmations
Close-out Netting and Risk Mitigation (L-4)
– Ability to Terminate
– Cherry picking
– Preference Payments
Day 2
Events of Default and Early Termination Payments under the ISDA Master Agreement (L-5)
– Payment Netting versus Close Out Netting
– Role of Close-out Netting
– Events of Default and Early Termination
– Market Quotation, Loss and the Close-out Amount
– Set-off
– Automatic Early Termination
– 1992 versus 2002 ISDA Master Agreements (key differences)
CASE STUDY – Terminating Derivatives during Lehman Bankruptcy
Key Legal, Business and Credit Terms in the ISDA Master Agreement (L-6)
– Agreement Structure
– Representations & Covenants
– Calculation Agent
– Boilerplate
– Service of process
Reducing Risk through Collateral
– Key Legal, Business and Credit Terms in ISDA Credit Support Annex
– New York versus English CSA
– Thresholds
– Eligible Collateral
– Transfer timing
Reducing Risks through Guarantees
– Understanding Guaranties
– Waivers, Consents
– Enforceability concerns
Reducing Risk through Master Master Agreements (L-11)
– Purpose
– Bridge
– Cross-Product Master Netting Agreement
– Mechanics
Understanding the Novation Protocol
Day 3
Minimizing Risks Through use of Legal Opinions
– Purpose
– Protections
– Key issues
Special concerns in negotiating Latin America
– Background
– Meeting and option issues
– Authorizations
– Other concerns
Understanding Prime Broker Documentation
– Purpose
– Mechanics
– Standard forms
Tax Risks
– Role of Representations and Forms
– Gross Up
Dealing with the Risks of Illegality and Force Majeure
– Background
– Mechanics
Problems with Contractual Currency
Special Concerns in Negotiating with Supranationals & Sovereigns
– Sovereign Immunity
– Hammersmith & Fulham & Ultra Vires
– Insolvency Concerns
– Government Sponsored Enterprises (Special
U.S. issues)
Bankruptcy and Insolvency Issues