Euromoney Legal Training

As the derivative market suffers record defaults by both dealers and their customers alike, understanding how market standard documentation helps protect a participant from such losses is more critical than at any other time in the market's history. The program provides an overview of the classic risks confronted by participants and the development by the industry of standard documentation and market practices. It
will also discuss how these risks are impacted by new regulatory reforms. In particular, the program will discuss the rights to terminate an ISDA® Master Agreement and termination procedures, using the recent collapse of Lehman Brothers as a case study of the process. In addition, the course will also review
the use of credit support such as the ISDA® Credit Support Annex, guarantees and letters of credit to secure a party’s exposure to its counterparties. The role and responsibilities of directors and officers in the process will also be analyzed as well as looking at prominent examples of failures in the derivatives market.
Finally, the new documentation needed to clear OTC derivatives will be explored in detail. Lawyers, negotiators, credit officers, relationship managers, and others involved in the use and documentation of OTC derivatives will develop a core understanding of the management of risk through OTC derivative documentation.

This course will help you:

_ Understand the effect of new regulatory reforms on documentation
_ Provide an overview of the U.S. and European Regulatory actions
_ Analyze crucial legal risk management techniques and principles
_ Understand the key risk areas when trading OTC derivatives

Day 1

Overview of the OTC Derivatives Market

• OTC versus exchange traded

• History of OTC market

• Dealers, end-users and ISDA®

• Products and uses

• Standard documentation

ISDA® Documentation after Regulatory

Reform

• Continued relevance of ISDA® documentation

• Effect of clearing requirements on documentation

• Overview of U.S. regulatory changes

• Overview of European Union efforts

Risks of OTC Derivatives

• Market risk

• Credit risk

• Legal risk

• Systemic risk

• Operational risk and rogue traders

• Other risks

Documenting the Trade

• Trade capture

• Letter Agreements versus electronic confirmations

• Risks in confirming process

CASE STUDY: Review of Confirmation

Close-out Netting and Risk Mitigation

• Payment netting versus Close-out Netting

• Ability to terminate

• Cherry picking

• Bankruptcy issues

Events of Default and Early Termination Events

• Understanding key events of default

• Understanding key termination events

Day 2

Early Termination Mechanics

• Market Quotation and Loss

• Close Out Amount

CASE STUDY: Lehman

Key Terms in the ISDA® Master Agreement

• Agreement structure

• Operative provisions

• Representations and Covenants

• Calculation Agent

• Other

1992 versus 2002 ISDA® Master Agreement

• Summary of substantive changes

• Updating 2002 for market practice

• Clarifications and other issues

• 2002 Protocol

Schedule to ISDA® Master Agreement

• Termination provisions

• Elections, notice, deliveries

• Key amendments

CASE STUDY: Review of Form of Schedule

Collateral and the Credit Support Annex

• Key provisions

• Eligible collateral

• Thresholds and minimum transfer amounts

• Differences between the New York CSA and the English Law CSA

CASE STUDY: Review of Paragraphs 11 and 13

Collateral Dispute Resolution Procedures

• Purpose and process

• Mechanics

Guarantees & Letters of Credit

• Key provisions

• Negotiating the guarantee

• Use of Letters of Credit with CSA

Day 3

Legal Opinions

• Purpose and limitations

• Format

• Key provisions

Negotiating with Hedge Funds and Prime Brokers

• Important additions to documentation

• Prime brokerage documentation

Master Master Agreements

• Purpose

• Role with other master agreements

Novation Protocol

• Background

• Importance

Illegality and Force Majeure

• 1992 versus 2002

• Structure and purpose

• Key provisions

Contractual Currency Clause

• Purpose

• Analysis of clause

Sovereigns Immunity Issues

• Purpose and history

• Reps, waivers and covenants

Officer and Director Responsibilities

• Role of directors

• Role of officers

• Duties and responsibilities

Reducing Tax Risks

• Gross up clauses

• Withholding issues

• Payor and payee representations

Day 4

Overview of OTC Derivative Regulatory Reforms

• Reducing Systemic Risk

• Accountability

• Transparency

• Reporting
G14 Dealers and the New York Fed

Commitment Process

• Commitment Letter Process

• History

• Progress

U.S. Legislative Reforms

• U.S. Treasury Proposals

• Legislative Process

• Clearing

• Exchange Trading

• Margin

• Dealer Regulation

• Reporting

• Exemptions from regulations

European Union Efforts

• European Directive on Derivatives

• Proposed Regulatory Reforms

Collateral Dispute Resolution Procedures

• History

• Current Dispute Resolution

• New Procedures

Regulatory Arbitrage Issues

• Cross Border Regulatory Cooperation

• Harmonization

• Areas of Concern

Exchange Traded versus OTC Derivatives

• CFTC vs. Prudential Regulation

• Standardization

• Margining

Mechanics of Clearing OTC Derivatives

• Agency versus Principal Models

• Role of Future Commission Merchants

• Progress in clearing CDS

• Progress in clearing Fixed Income

Practical Issues in Clearing

• Documentation

• Timetables for Clearing

• “Clear ability”

• Fees

• Legal Opinions

• Christian Johnson

  Christian Johnson has taught law courses on finance, derivatives and tax at Loyola Law School and the University Of Utah College Of Law for thirteen years. He has published 4 books and over 36 articles on these topics. Along with Paul Harding he is co-author to OTC derivatives and REPO documentation which have become standard texts in the area. Professor Johnson has spoken on finance and derivatives at such institutions as the International Monetary Fund, Osgoode Law School, the National University of Singapore, the Federal Reserve Bank of Chicago, the Federal Home Loan Bank System, the American Bar Association and the Futures Industry Association. Professor Johnson has also worked as a consultant on finance documentation for ABN AMRO, Wachovia Bank and several of the Federal Home Loan Banks and other large financial institutions and insurance companies. Prior to teaching at law school, Professor Johnson was an associate for Milbank, Tweed, Hadley & McCloy in New York and Mayer, Brown, Rowe & Maw in Chicago. Professor Johnson attended Columbia Law School and was the executive editor of the Columbia Law Review and a Harlan Fiske Stone Scholar.

  Courses run by this instructor

  • Repos and Securities Lending: Negotiation and Documentation of New York and English Law Documentation - New York City
  • Legal Risk Management of OTC Derivatives-Miami

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.