On September 15, 2009, the United States Bankruptcy Court for the Southern District of New York (the “Court”) determined that Metavante Corporation (“Metavante”), a counterparty to an interest rate swap agreement with Lehman Brothers Special Financing (“LBSF”), a bankrupt Lehman entity, was no longer excused from performing under the swap (to the extent it had been at all) and no longer had the ability to terminate the swap. READ MORE
On September 14, 2009, the Securities and Exchange Commission (“SEC”) issued a release (the “Extension Release”) which extended the expiration dates of five interim final temporary rules (the “Interim Rules”) it had adopted in January 2009 under the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Trust Indenture Act of 1939, as amended, relating to credit default swaps (“CDS”). The Interim Rules were adopted in connection with temporary exemptive orders issued by the SEC to foster the development and facilitate the operation of central clearing counterparties (“CCPs”) for eligible types of CDS. Among other things, the Interim Rules temporarily (i) exempt from all provisions of the Securities Act (except the anti-fraud provisions) eligible CDS transactions that are offered and sold only to “eligible contract participants” (as defined in Section 1a(12) of the Commodities Exchange Act of 2000, as amended) and that are cleared by either a CCP satisfying specified conditions for exemption set forth in its exemptive order or a clearing agency registered under Section 17A of the Exchange Act; (ii) exempt any exchange that effects transactions in eligible CDS from the requirements of Sections 5 and 6 of the Exchange Act to register as a “national securities exchange” and (iii) exempt any broker or dealer that effects transactions on an exchange in eligible CDS from the requirements of Section 5 of the Exchange Act. READ MORE
In September 2009, the European Central Bank (“ECB”) released a report entitled OTC Derivatives and Post-Trading Infrastructures (the “Report”). In 2008, the ECB launched an analysis of the over-the-counter (“OTC”) derivatives market and its infrastructure for the primary products entered into in the marketplace (i.e., interest rate swaps, equity derivatives, credit default swaps, foreign exchange derivatives and, although they are not typically categorized as derivatives, repurchase agreements). This analysis, which focused on the euro-segment of the market, was initiated as a result of concerns over the limited development of post-trading infrastructure for these products, particularly against the backdrop of the recent financial turmoil, and its possible effect on the euro area. The Report presents the main findings of this analysis, including a summary of the general market characteristics and the current state of post-trading infrastructure, and discusses the policy implications relating to its findings. READ MORE
The International Swaps and Derivatives Association, Inc. (“ISDA”) announced the results of its Mid-Year 2009 Market Survey (the “Survey”) of privately-negotiated derivatives at its regional conference in New York City on September 15, 2009. The Survey results indicated that the notional amounts outstanding over the past six months of interest rate derivatives increased by 3% to $414.1 trillion, of equity derivatives remained flat at $8.8 trillion and of credit derivatives decreased by 19% to $31.2 trillion. Each of these products has seen a decline in notional amounts outstanding over the past year by 11%, 26% and 43%, respectively.
The Survey cautioned that the notional amounts outstanding reflected only approximate market activity, not risk. It also pointed out that, as of December 2008, according to the Bank for International Settlements, the gross market value (i.e., the cost of replacement) of all derivatives was approximately 5.7% of outstanding notional amount and the net credit exposure (i.e., after netting of exposures but before the application of any collateral) of all derivatives was approximately 0.80 percent of outstanding notional amount. Applying these percentages to the total notional amount outstanding of $454.1 trillion for the trade types covered by the Survey results in a gross mark-to-market value of $26 trillion and a net credit exposure of $3.8 trillion. The Survey results were based on responses from ISDA’s “primary membership”: 86 firms provided responses on interest rate derivatives, 77 firms provided responses on equity derivatives and 78 firms provided responses on credit derivatives.
