In this first issue of The Delta Report for 2017, we cover crucial updates on developments in the derivatives space in Europe and Asia. In the UK, Brexit-related issues continue to take the spotlight. The Article 50 challenge before the UK Supreme Court has created uncertainty as to whether the UK government will be able to retain its original Brexit timeline of March 2017. Another key topic on everyone's lips – margining. Undoubtedly, 2017 is going to be the year of "margining". On 4 January 2017 the rules governing the mandatory posting of collateral for uncleared derivatives entered into force in Europe. The key date to watch out for is 1 March 2017 – all in-scope counterparties will be obliged to post variation margin in Europe and Singapore.
1. Annual "Hot Topics in Derivatives" Seminar
Each year, White & Case hosts a "Hot Topics in Derivatives" seminar for our clients conducted live from our London office (and via videoconference in other offices including New York and Singapore). The topics covered in each of the seminars focus on key regulatory developments and updates that are relevant to our clients in the derivatives industry. Through our seminars, we aim to give practitioners practical insight and keep them at the forefront of global developments in the derivative space.
On 17 November 2016, lawyers from our London and New York teams led by partners, Ian Cuillerier and Ingrid York, presented on key topics in the industry which included:
(a) US and EU Margin rules and new ISDA documentation that has resulted from the new rules;
(b) updates and ISDA Protocols based on bank resolution regimes in the US and EU;
(c) an update on Brexit; and
(d) various other regulatory updates, particularly in the US and EU.
For this year's seminar, we will continue to bring you in-depth insight and further updates on the fundamental changes taking place across the globe.
2. Developments in Europe
Given the current Article 50 challenge before the UK Supreme Court, there is uncertainty as to whether the UK government will be able to retain its original Brexit timeline of March 2017. The Supreme Court's judgment is expected later this month. Further issues could also arise in relation to the UK prime minister's proposed Great Repeal Bill and whether the UK's departure from the EU could come before the ECJ.
After a six-month delay, the rules governing the mandatory posting of collateral for uncleared derivatives entered into force on 4 January 2017. By 1 March 2017, all in-scope counterparties will be obliged to post variation margin with a phased-in implementation for initial margin from 1 September 2017 through to 1 September 2020. In this issue, we review the amendments made in the final draft and consider how the rules operate extra-territorially (including Brexit which will impact the analysis for UK based entities).
In this article, we outline the main resolution tools available to a resolution authority and consider the broad powers of resolution authorities that may impact existing derivative transactions in the event of a bail-in. Specific issues related to contractual recognition under Article 55 are also discussed.
A recent UK High Court ruling in Lehman Brothers International (Europe) (In Administration) ("Lehman Waterfall IIC") considers the application of statutory interests on proven debts in an administration and in particular the proper interpretation of "Default Rate" in the 1992 and 2002 versions of ISDA Master Agreements.
The Court of Justice of the European Union gives its first ever ruling on what constitutes "possession or control" of financial collateral for the purposes of the Financial Collateral Directive.
The German legislature has passed an amendment to the German Insolvency Code providing clarity on the status of netting arrangements in financial transactions which was cast into doubt by the German Federal Court of Justice in June last year. This article illustrates the background of the legislative amendments and provides an outlook as to the consequences of the new law in relation to contractual close-out netting arrangements.
This update provides a snapshot of events in 2016 which has led to the current status of MiFID II and MiFIR.
3. Developments in Asia
2017 is the year of "margining" – MAS Publishes Guidelines on Margin Requirements for Non-centrally Cleared OTC Derivatives Contracts
This article provides a snapshot of the much-awaited Margin Guidelines (released 6 December 2016) from MAS.
HKMA issues guideline on exercising disciplinary power to order pecuniary penalty under the Securities and Futures Ordinance (Chapter 571)
This update provides a summary of the HKMA guideline.
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