Seward & Kissel’s Derivatives and Trading Practice Group is internationally recognized for its depth of expertise and broad market coverage. Our attorneys advise many of the world’s largest asset managers and hedge funds on derivatives transactions and regulatory compliance, as well as related trading and counterparty relationship arrangements, such as ISDA Master Agreements, prime brokerage, clearing and collateral arrangements.
Our derivatives and trading practice is part of our Corporate Finance Group, and services clients of our market-leading investment management and asset securitization practices. Together, these comprise more than 55 lawyers specializing in advising financial institutions, whose collective experience and thorough understanding of the financial markets allows us to provide comprehensive solutions for our clients.
Seward & Kissel has a dedicated derivatives and trading practice, advising on the full range of derivatives products, trading arrangements and related regulations and compliance matters. These include everything from bespoke structures to commoditized or high-volume products, from OTC transactions and ISDA Master Agreements to prime brokerage and financing agreements (such as term commitments, lock-ups and term repo arrangements), and from Dodd-Frank to global macro-prudential regulatory developments (including the relevant ISDA Protocols). In addition, our derivatives team is actively involved in our Blockchain and Cryptocurrency Group, an inter-disciplinary group that advises clients on issues arising from investments in assets based on blockchain or distributed ledger technology (DLT).
Our derivatives and trading practice focuses on serving asset managers, investment managers and other end-users of derivatives and trading arrangements who comprise the buy-side of the market. These clients include a number of the world’s largest hedge funds and asset managers, as well as private equity firms, funds of funds, mutual funds, and corporate end-users.
Derivatives and Structured Products
We advise our clients in connection with the structuring, negotiation and documentation of an array of over-the-counter derivative instruments, including hybrid products. Our attorneys draft and review complex derivatives such as credit default swaps and total return swaps that provide synthetic or leveraged exposure to underlying assets of all types, that provide regulatory capital relief to swap dealers and financial institutions (including VAR or liquidity coverage ratio trades), that serve as credit enhancement or other support for structured finance programs, or that otherwise constitute an alternative to direct investments in the securities, commodities or other assets referenced in such derivatives.
Key areas of expertise in derivatives and structured products include:
- Equity total return swaps (including master confirmations)
- Credit default swaps (including, single name, index, Loan CDS, CMBS/CMBX, first to default baskets and CDS on asset-backed securities using the pay-as-you-go form)
- Loan total return swaps (for both credit trading and CLO warehouse financing)
- Bond total return swaps (including those referencing convertible or hybrid instruments)
- Interest rate swaps
- FX swaps
- VAR and LCR risk-transfer transactions (in CDS, TRS or hybrid forms)
- Hybrid derivative instruments (such as bespoke TRS/CDS structures and TRS with embedded credit protection features
- OTC options on securities and commodities (including exotic options such as knock-in/knock-out and digital/dual digital structures)
- OTC derivatives prime brokerage intermediation (such as FX, rate swap and equity variance swap PB arrangements)
- Commodity derivatives
- Equity variance and volatility swaps (including relevant master confirmations)
- Structured credit products, including credit linked notes
- Repo financing arrangements connected with regulatory risk retention requirements
- Derivative warrants and equity linked notes
- Bond options
- Cryptocurrency, blockchain and DLT products and platforms (including derivatives with cryptocurrency underliers as well as investment, hedging and financing arrangements using blockchain or DLT)
- Collateral structures and credit risk mitigation arrangements (including segregated collateral and custody arrangements, guarantees and other credit support arrangements)
Trading and Counterparty Arrangements
We have decades of experience advising end-user clients on all aspects of the key trading and counterparty relationship arrangements they need to execute their trading and hedging strategies with necessary legal and credit risk protection. Many of our practitioners were deeply involved in assisting clients throughout the market crises of 2007 – 2008, including the Lehman bankruptcy and its aftermath, and the lessons learned from that experience inform our approach to managing counterparty risk. This means that every client we advise benefits from our thorough understanding of the credit terms, termination events and default remedies that are the most important features of these arrangements. And our knowledge of the relevant regulatory, bankruptcy and insolvency regimes allows us to provide our clients with the advice they require to understand and manage their counterparty risk.
Our team’s market judgement and legal experience is tethered to a fundamentally pragmatic view of how trading relationships should be established and maintained. We work closely with each client to understand their needs and concerns, and tailor our approach as required to achieve the results each client demands and do so in the most cost effective way.
We have worked with clients using all of the various trading strategies employed by the market, whether the purpose is to gain exposure to risk, to hedge risk, or to finance the trading activities of the client. Our team is familiar with all the market-standard master agreements, as well as the proprietary documentation utilized by many banks and dealers for opening prime brokerage, clearing and other accounts related to our clients’ trading activity.
Key areas of expertise in trading and counterparty relationship arrangements include:
- ISDA Master Agreements (including the related Credit Support Annex)
- Prime brokerage agreements
- Term commitment and lock-up arrangements
- Futures clearing agreements (including with respect to cleared OTC derivatives)
- Repurchase agreements (including market standard MRA and GMRA forms, as well as bespoke repo financing and term repo facilities)
- Securities lending arrangements (both using standard master agreements on MSLA and GMSLA forms, as well as bespoke arrangements or those linked to prime brokerage or derivatives/synthetic exposure)
- ABS forward transaction agreements (MSFTA)
- Tri-party custody and collateral segregation arrangements (including related account control agreements)
- Term sheets and templates for ISDA, prime brokerage, clearing, repo and forward trading arrangements
- Benchmarking of key terms against the market
- Compliance matrix creation and maintenance (including consultation with relevant IT resources to devise appropriate data capture and tracking technology
Derivatives Regulations and Compliance
In the aftermath of the financial crisis, regulators in the U.S. and abroad have established a comprehensive regulatory regime for the derivatives markets. The attorneys in our derivatives and trading practice are at the forefront of these regulatory developments, understanding that a thorough knowledge of the regulations – both where they are, and where they are going – is essential to providing our clients with advice in connection with their derivatives and trading activity.
Our team’s derivatives regulatory practice encompasses the Dodd-Frank Act and regulations related to both systemic and counterparty risk, swap margin (including forthcoming initial margin requirements), central clearing of OTC derivatives, swap execution facilities and related execution requirements, collateral segregation, swap data reporting, recordkeeping and compliance. We coordinate closely with law firms all around the world to ensure that our clients are informed of all the various regulatory issues that affect their trading. The Firm is a member of the International Swaps and Derivatives Association, Inc., and members of our derivatives team are also outside counsel on derivatives matters for the Managed Funds Association. We are regularly involved in relevant ISDA working groups and in the development and drafting of important ISDA protocols.
Key areas of expertise in derivatives regulation and compliance include:
- Compliance with the Dodd-Frank Act and related derivatives regulations, including the regulatory initial margin rules for uncleared swaps that will be effective for certain buy-side clients beginning in September 2019
- Macro-prudential efforts to mitigate systemic risk, including the Federal Reserve’s QFC Rules and limitations on the exercise of default remedies and stays on cross-defaults
- Relevant ISDA protocols, including the 2018 U.S. Resolution Stay Protocol
- Extra-territorial reach of the Dodd-Frank Act and global regulatory reforms of the derivatives markets
- FINRA margin requirements for forward transactions in securities and related documentation