Has the initial goal of bringing order to the financial markets been achieved? Has there been an overreaction and new regulations have inhibited the free market system and specifically liquidity? What clarity of legal thought has now evolved which can be trace through the various regulations and does it enhance established legal principles? Is there now an emerging need for deregulation to re-dress the balance of new regulations? 2

1. Post Trade Forum & Trade Show – 10 September 2015
Legal Hot Topics – Pierre Labuschagne
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2. Legal Hot Topics
Hindsight
 Has the initial goal of bringing order to the financial markets been achieved?
 Has there been an overreaction and new regulations have inhibited the free
market system and specifically liquidity?
 What clarity of legal thought has now evolved which can be trace through the
various regulations and does it enhance established legal principles?
 Is there now an emerging need for deregulation to re-dress the balance of new
regulations?
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3. New Era of relationship between Legal and Compliance
 Deeper analysis of new regulations required
 Grey areas
 The role of Legal & Compliance is continuously evolving.
 Business Prevention Officers?
 Grey requires new partnership with Legal and Compliance
– Resources and using consultants/contractors and whether long term
expertise stays within a firm
– Early identification of possible regulatory violations
– Spotting potential business opportunities
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Legal Hot Topics

4. Mandated Clearing
 Deadlines fast approaching
 Complexity of clearing documentation not to be underestimated
 Basel III – leverage ratio requirements are a disincentive for main clearers
 Mitigating factor of segregation of funds not recognised
 Main clearers will focus on platinum and profitable clients
 Strong possibility that smaller Financial Counterparties will end up without
clearing ability
 Predicted smaller building societies will battle to provide fixed mortgages
4
Legal Hot Topics

5. Legal Hot Topics – Indirect Clearing
CCP
Clearing Member
Segregation
Separate records
and accounts
Portability
EMIR
Clearing Client
Indirect Client
Leapfrog Payment

6. Legal Hot Topics
Indirect Clearing
 Intended to be simpler and cheaper because clearing client does not have to
contribute to default fund of the CCP
 Clearing Member assumes same role as the CCP and the clearing client
assumes some of the rights and obligations of the Clearing member
 Should be voluntarily
 Leapfrog Payment
– How to avoid bankrupt estate of the clearing client.
 Portability – Difference between EMIR and MiFIR
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7. Legal Hot Topics
Clearing Documentation
CDEA (Clearing Derivatives Executing Agreement)
 Trades not cleared and set out various fall back positions
 Calculation of early termination amounts
 Originates through FIA US
 Swapclear has own version
 Relevance in the US due to SEFs?
 MiFIDII/MiFIR impact
 Frontloading
 EU and Non-EU
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8. Legal Hot Topics
Clearing Documentation
NFC Representation
 Non EU Counterparties
 Problem: One NFC+ contaminates all NFCs in the group
 Non EU-groups must do extensive due diligence exercise
 Q&A – If NFC- representation not obtained treat as an NFC+
– Daily mark-to market
– Cleared non cleared pricing
– Portfolio reconciliation
 ISDA NFC Protocol
– Over the top?
– Additional Termination Event
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9. Legal Hot Topics
Reporting agreements
 ISDA Standard
 Many firms have tailored versions
 Indemnity
 Remaining regulatory obligations for client
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10. Legal Hot Topics
Clearing Agreements
FOA/ISDA Clearing Addendum
 ISDA Master Agreement
– Credit Support Annex
 Prime Brokerage Agreement
 Futures Agreement
 Very detailed with definitions and drafted in working groups consisting of
both buy and sell side groups.
 Legal Opinions
 Detailed portability provisions
 Can be used for different CCPs
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11. Legal Hot Topics
Clearing Agreements
SwapClear Clearing Agreement
 Frontrunner of the FOA/ISDA Clearing Addendum
 In conjunction with SwapClear Execution Agreement
 Essentially same principles apply as the FOA/ISDA Clearing Addendum
 Various different jurisdictional legal opinions.
FIA Europe module to Client Agreement
 The European standard terms for exchange traded derivatives
 OTC Derivatives module that facilitates trading of OTC Derivatives
 Less complex and more scope for negotiations
 Less detailed margin provisions
 Legal Opinions
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12. Legal Hot Topics
Margin for Uncleared OTC Derivatives Trades
 Mainly applicable on uncleared trades between Financial Counterparties and/or NFC+s
 Certain thresholds of gross notional trades are triggered
 Level two regulations not yet been finalised
 Main impact will be on documentation providing collateral such as the ISDA Credit
Support Annex/Deed
 No rights of rehypothecation (re-use of collateral) of initial margin
 Initial margin to be kept with third party custodians – new agreement
 Rights of rehypothecation can apply to variation margin
 Can initial and variation margins be covered under the same CSA/Deed?
 Principles of Credit Support Deed to be introduced?
 Method of Introducing amendments
– Wet signature exercise
– Protocol adherence
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13. Legal Hot Topics
MiFID2
CSDR
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14. Legal Hot Topics
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of any actions taken on the basis of the information provided in these slides or
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audience should conduct their own independent enquiries and obtain their own
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assist in the understanding the legal principles, regulations or other business principles
as set out under these slides and presentation thereof.

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