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On March 1, 2010 after many months of work, the International Swaps and Derivatives Association and the International Islamic Financial Market jointly issued the first Shari'ah-compliant master agreement for over-the-counter derivatives. Named the "ISDA / IIFM Ta'Hawwut Master Agreement," it provides a framework for the expansion of derivatives activity in the Middle East, South Asia and many regions throughout the world where hedging is not standard practice. Part I focused on derivative transactions within Shari'ah-compliant finance principles, and in Part II, we look at some of the differences between the Ta'Hawwut Agreement and the 2002 Master Agreement.
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On March 1, 2010 after many months of work, he International Swaps and Derivatives Association and the International Islamic Financial Market jointly issued the first Shari'ah-compliant master agreement for over-the-counter derivatives. Named the "ISDA / IIFM Ta'Hawwut Master Agreement" it provides a framework for the expansion of derivatives activity in the Middle East, South Asia and many regions throughout the world where hedging is not standard practice.. Based on the 2002 ISDA Master Agreement, the Ta'Hawwut Agreement has been developed under the guidance and approval of the IIFM Shari'ah Advisory Panel. The Ta'Hawwut Agreement is therefore expected to be used as a reference for market participants where they or their customers need to hedge risks in line with Shari'ah principles.
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On May 5, 2009, Judge James Peck, the bankruptcy judge in the Lehman Brothers bankruptcy cases, held that the safe harbor provisions of the Bankruptcy Code do not override the mutuality requirements for setoff under section 553(a) of the bankruptcy Code. As a consequence, the bankruptcy court prohibited Swedbank, a non-debtor counter party to a swap agreement, from setting off pre-petition claims against Lehman against funds collected for Lehman's account post-petition. See In re Lehman Bros. Holdings Inc., Bankr. Case No. 08-13555 (JMP) (Bankr. S.D.N.Y. May 5, 2010) (the "Opinion"). While Swedbank does not involve a triangular setoff, the analysis of the Swedbank court should equally apply to triangular setoff situations (or to any setoff lacking mutuality).
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A string of recent decisions from the English courts in disputes over capital markets transactions has highlighted the importance of getting the jurisdiction clause right to all of those involved in the OTC industry. This article examines some of the key messages arising, the most fundamental of which is that it would be unwise for anyone dealing with derivatives contracts to treat the jurisdiction clause as a standard "boiler plate" provision, to be addressed at the last minute of any transaction and unworthy of serious negotiation.
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The credit derivatives market underwent major reform in 2009 and more reform is yet to come. The market has certainly been moved by the changes already implemented, with CDS clearing (possible, amongst other things, as a result of the fungibility created by the dynamic protection period introduced by the Big Bang) now taking hold. Of course, many challenges for the market still remain and many politicians still retain their (often ill-informed) opposition to the use of credit derivatives. But the rapid, industry driven, reform in 2009 has rightly been recognised as a step in the right direction.
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On the day when KfW wired EUR300 million to the defaulted Lehman Brothers, it became clear that a new regime for risk control and counterparty risk assessment was imminent. No longer could the middle office operate in an end-of-day or end-of-week environment while the front office operated in real-time. This article illustrates how an institution can significantly enhance its ability to actively manage counterparty credit exposure by using credit default swap information provided by the Credit Market Analysis (CMA) independent CDS data service. It will also introduce CMAs market activity indicators, which provide information that is not contained in CDS pricing, but which can have a significant and valuable impact on counterparty credit assessment.
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Structured notes are useful tools for both investors and issuers because of their flexibility. They can be linked to the performance of equity securities, loans, bonds, indices, commodities or a basket of financial assets and can provide investors with a leveraged exposure to the reference asset or a hedge against particular assets to which they already have exposure. The issues an investor needs to care about will vary greatly depending on the type of the structured note and the investor's sensitivity to counterparty and structural risks. This article will focus on the issues that an investor should consider before investing in structured notes issued by special purpose vehicles (SPVs).
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A number of significant changes are under way with respect to the credit default swaps market. Market participants will need to grapple with the shift away from familiar bilateral relationships and industry standard documentation to each clearinghouse's own rules and procedures.
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Last year saw longevity hedging by U.K. pension plans move from theory to practice. Previously, use of such contracts to transfer longevity risk was limited primarily to life insurance companies seeking protection on their annuity books. However, in June 2009 the U.K. engineering group Babcock International PLC, confirmed that the trustees of one of their defined benefit pension plans had entered into a 50-year longevity trade, reportedly with Credit Suisse, with a notional value of GBP500 million (this was to be the first of three trades completed by pension plans within the Babcock group in 2009).
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The regulation of structured products marketed to retail investors is likely to undergo major changes under proposals currently under consideration by the European Commission. The Commission plans to publish sometime in the next few months an outline of its legislative proposals for changes in the regulation of what it terms packaged retail investment products, or PRIPs.