Derivatives

Recent Articles

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  29/03/2023

  ESMA Public Statement on derivatives on fractions of shares

  On 28 March 2023, the European Securities and Markets Authority (ESMA) published a Public Statement on derivatives on fractions of shares. Fractional share trading has risen in popularity in the UK and European markets in recent years, enabling retail investors to get direct exposure to tech companies and other issuers whose shares may be relatively expensive and which have traditionally been more frequently accessed indirectly through mutual funds. This exposure can be achieved through a trust-based or “co-ownership” model, under which multiple clients each have a beneficial claim...

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  13/07/2021

  China Futures Law: netting, collateral and prudential requirements for banks

  CN

  Close-out netting for OTC derivatives As mentioned above, the provisions for OTC derivatives, importantly, include protection for close-out netting. Close-out netting is the right to terminate all outstanding transactions (and the various payment and delivery obligations agreed under them) and to determine a net amount owed by one party to the other, should a counterparty default - and is a key provision of trading agreements, such as those published by the National Association of Financial Market Institutional Investors and the Securities Association of China, and, internationally, the ISDA Master...

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  30/03/2021

  ESG Derivatives: all the lights are green

  Genesis of a wealth of regulations These sustainable finance instruments are taking off in a context where international and European standards in favor of climate transition are proliferating. Reduction of greenhouse gas emissions The Kyoto Protocol, the first international treaty for the reduction of greenhouse gas emissions, was signed in 1997. By ratifying the protocol, the signatory parties, including the European Union (the “EU”), committed themselves to respecting CO2 emission quotas. The United Kingdom remains a party to the Kyoto Protocol notwithstanding that it is no longer...

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  16/02/2021

  Synthetic LIBOR and tough legacy contracts - FCA's enhanced powers

  On 21 October 2020 the UK Government introduced the Financial Services Bill to Parliament. This Bill includes amendments to the Benchmarks Regulation as it now forms part of UK domestic law (“UK BMR”), which provide the Financial Conduct Authority (“FCA”) with new and enhanced powers to oversee the orderly wind-down of benchmarks such as LIBOR. Under the proposed new Articles 23A and 23D, the FCA will be able to designate a benchmark as “critical”, direct a change in its methodology and extend its publication for a limited time period for the benefit of “tough...

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  14/10/2020

  ISDA launches IBOR Fallbacks Supplement and Protocol: next steps and issues

  Background and analysis On 1 October 2020, ISDA received a positive business review letter from the US Department of Justice in relation to the proposals. ISDA has also discussed the proposals with other competition authorities, including the EU’s Directorate-General for Competition. Satisfied that no adverse action is anticipated in relation to the proposals, on 9 October 2020 ISDA announced the launch of the IBOR Fallbacks Supplement and the IBOR Fallbacks Protocol. The Working Group on Sterling Risk-Free Reference Rates has welcomed ISDA’s announcement and has encouraged early adherence...

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  15/07/2020

  Synthetic LIBOR: a silver bullet?

  As part of its anticipated powers it is envisaged that the FCA could introduce a “synthetic LIBOR” by directing a methodology change and requiring publication on the same screen as LIBOR currently appears to ensure protection of consumers and market integrity. Leaving aside the economic and mathematical challenges of developing a synthetic LIBOR, one of the issues that will arise in this scenario is the extent to which market participants can use a synthetic LIBOR. The proposals do not mean that there is an end to or a relaxation of the current LIBOR transition flight path. In the...

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