Derivatives and ISDA®

Part One

Introduction: Overview

What are Derivatives?

• Legal concerns: Gaming laws

• Insurance laws

Uses of Derivatives

• Purposes

• ISDA derivatives training covers the types of risks hedged: Currency risk

• Interest rate risk

• Commodity risk

• Weather risk

• Inflation risk

• Mortality risk

Credit Risk – Regulatory capital and balance sheet treatment

Synthetics

How are Derivatives Traded?

• Over-the-counter (OTC)

• Exchange-traded

Types of Derivatives

• Swaps: Interest Rate Swaps

• Interest Rate Caps

• Interest Rate Floors

• Interest Rate Collars/Structured Caps

• Currency Swaps

Options:

• Call Option

• Put Option

• European Style Option

• American Style Option

• Bermudan Style Option

Forwards and Futures

Equity derivatives

Credit derivatives:

• Reference Entity

• Reference Obligations

• Credit Events

Swaptions

Total Return Swaps

Commodity derivatives

Property derivatives

This comprehensive coverage of derivative products gives participants a strong foundation for knowledge application in practice and advancing their derivatives training.

Part Two

ISDA Documentation

Introduction

• Part two provides a structured overview of the ISDA and key agreements

• The architecture of the ISDA documentation: 1992 ISDA Master Agreement (Multi-Currency)

• 1992 ISDA Master Agreement (Local Currency – Single Jurisdiction)

• 2002 ISDA Master Agreement

Summary of the ISDA documents and protocols

ISDA Protocols

• What is an ISDA Protocol?

• Procedure for Adherence

• Protocol documentation

ISDA Definitions

The following definitions are covered during ISDA derivatives training:

• 2006 ISDA Definitions

• 2005 ISDA Commodity Definitions

• 2014 ISDA Credit Derivatives Definitions

• 2011 ISDA Equity Derivatives Definitions

• 1998 FX and Currency Option Definitions

ISDA Credit Support Annexes (CSA) and Credit Support Deeds (CSD)

• Purpose and overview

• English Law Deeds and Annexes

• New York Law Deeds

• 1995 ISDA Credit Support Annex (CSA) – Paragraph 11

Financial Collateral Regulations

• Title transfer

• Security financial collateral arrangement

• Impact on close–out netting provisions

Pertinent Issues

• Mark-to-market valuations and Netting: Insolvency

• Section 6(e)

Early Termination and Events of Default:

• Steps to be taken

• Commercial considerations

• Netting legal opinions

ISDA 2014 Collateral Agreement Negative Interest Protocol

Tax:

• Tax representations and undertakings

• Tax event

• FATCA

Counterparty issues cover the associated pertinent issues within this derivatives course:

• Legal capacity

• Limitations in constitutional documents

Case Law

• Hammersmith & Fulham

• Credit Suisse International v Stichting Vestia Groep

Documenting Derivatives in Loan Transactions

• Issues to consider: Loan and ISDA Documentation

• Events of Defaults

• Additional Termination Events

• Specified Entities

• Notional Reductions

• Collateral

Regulations

EMIR

• Purpose

• Scope of EMIR

• Outline of obligations imposed: Clearing obligation

• Reporting obligation

• Risk mitigation requirements (and overlap with MiFIR)

• New Margining Requirements

• 2016 ISDA Variation Margin Protocol

• ISDA SIMM

Covers the EMIR: REFIT EU Regulation:

• Key Changes to EMIR

• Key Impact Changes in the Definition of Financial Counterparty (FC)

• Small Financial Counterparty (SFC)

• Determination of NFC clearing threshold

• Reporting Obligation

• FRANDT (Fair, Reasonable, Non-Discriminatory and Transparent commercial terms)

• Power to Suspend Clearing Obligation

• Article 39 EMIR – National Insolvency Laws

• Information from CCPs

By the end of this section, participants will have a practical understanding of the key regulatory requirements governing derivatives markets, forming an essential part of this derivatives course.

US Reforms

• Training concludes with the assessment of the Dodd-Frank Act

Training Objectives

• Derivatives training courses at Redcliffe provide a basic foundational session offering a clear overview of derivatives, their key features and the types of financial risks they are designed to hedge.

• Participants are introduced to how derivatives are traded: Exchange Traded vs OTC.

• Delegates will understand different types of derivatives, including swaps, options, commodity, equity, credit derivatives, etc.

• Sessions provide an overview of the basic architecture of ISDA’s documentation, covering the ISDA Master Agreement, the ISDA definitions, ISDA protocols, and ISDA Credit Support Annex and Credit Support Deeds.

• Participants are updated on the pertinent issues related to ISDA Master Agreements and the case law relevant to ISDAs.

• Training covers an outline of issues to consider when drafting ISDA Master Agreements concerning loan transactions.

• Derivatives course participants cover the regulatory aspects relevant to the derivatives market, including EMIR, the EU REFIT Regulations, the 2016 ISDA Variation Margin protocol relevant to CSAs and the US regulations – Dodd-Frank.

Training Course Summary

Derivatives training courses at Redcliffe cover the important aspects of derivatives trading. Sessions are relevant for in-house and private practice lawyers, traders and bankers involved in complex structuring, including swaps. We welcome ISDA documentation teams, operations teams that book ISDA trades and compliance personnel responsible for ensuring regulations relating to ISDA transactions are complied with. Accountants advising clients on swap transactions will benefit from this session.

We set the scene with an introduction to derivatives, assessing what they are, why they are used, by whom and how they are traded. Looking at the various types of derivative products available in the market, we will highlight the potential of using these in a wide range of product sectors.

The workings of the derivatives market and the trade association, ISDA, are covered during derivatives training. Delegates are taken through an overview of the ISDA documentation framework, including coverage of the ancillary documentation, the ISDA Credit Support Annexes and Credit Support Deeds. Pertinent issues in ISDA-documented trades, such as netting, mark-to-market valuations, negative interest rates, events of default and early termination, are assessed. Participants discuss how to document derivatives in loan transactions and cover some English law cases and counterparty issues.

Finally, the EU and US regulations affecting derivatives are covered, discussing how the banks and law firms implement the regulations with practical guidance where appropriate.