Mr. Mathews, a partner in Orrick’s New York office, serves as Global Co-Head of
the Derivatives group. He is also a member of the Structured Finance, Banking
and Finance, and Energy and Infrastructure groups.
His practice focuses on representing financial institutions, governmental and
regulated entities, hedge funds and corporate end-users in structuring and
negotiating a broad range of fixed income, foreign exchange, commodity, energy
and credit derivative products. Among other things, he has successfully
negotiated numerous domestic and cross-border hedging transactions relating to
leveraged loans and infrastructure transactions. In addition, Mr. Mathews has
significant experience in foreign exchange and fixed income prime brokerage
issues, as well as various structured products. He also regularly advises
clients on derivatives regulation, including rules relating to the central
clearing, exchange trading, reporting, recordkeeping and other requirements of
the Dodd-Frank legislation, as well as the negotiation of related
Mr. Mathews is lead editor of Orrick’s publication, Derivatives in Review, which periodically
highlights important legal, regulatory and other newsworthy developments in the
area of derivatives. He has also published articles in several journals,
including on rating agency hedge criteria in connection with structured finance
Before joining Orrick, Mr. Mathews was vice president and assistant general
counsel at Goldman, Sachs & Co. and director and counsel at UBS AG. He also
served as a law clerk to the Honorable Nicholas Tsoucalas of the United States
Court of International Trade.
From 1999 to 2007, Mr. Mathews held a commission as a Captain in the United
States Army Reserve, where he was qualified to practice as a Judge Advocate. A
veteran of both Operations Iraqi Freedom and Enduring Freedom, he served as an
Operational and Administrative Law attorney in Kuwait, Iraq and Afghanistan.
On July 12, the International Swaps and Derivatives Association, Inc. (“ISDA”) initiated a market-wide consultation (the “Consultation”) on technical issues related to new benchmark fallbacks for derivatives referencing certain interbank offered rates, or IBORs, in response to the expected discontinuance of the publication of those IBORs at the end of 2021. The purpose of the Consultation is to ease the transition of the derivatives market from referencing existing IBOR rates to alternative risk-free-rates (“RFRs”) that have been identified as part of the global benchmark reforms. These RFRs are intended to be based on robust and highly liquid underlying markets that, unlike the relevant IBORs, do not require and are not based on submissions from panel banks or others.
On July 25, Commodity Futures Trading Commission (“CFTC”) Chairman Giancarlo testified before the House Committee on Agriculture to address the priorities and recent work of the agency. The testimony touched on a number of areas, but focused in significant part on the CFTC’s oversight of virtual currencies and financial technology (“FinTech”). Those portions of the testimony are summarized below.
On April 26, Commodity Futures Trading Commission (“CFTC”) Chairman Giancarlo and the CFTC Chief Economist published a white paper titled “Swaps Regulation Version 2.0: An Assessment of the Current Implementation of Reform and Proposals for Next Steps” (the “White Paper”). At the International Swaps and Derivatives Association, Inc. (“ISDA”) annual meeting where the White Paper was initially presented, Chairman Giancarlo described the White Paper as “economy-focused” and stated that regulatory role of the CFTC is focused on “what’s in the best interest of markets.”
On January 19 the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC”) issued a joint statement warning about potential enforcement actions involving the offering of digital instruments: “When market participants engage in fraud under the guise of offering digital instruments – whether characterized as virtual currencies, coins, tokens, or the like – the SEC and CFTC will look beyond form, examine the substance of the activity and prosecute violations of the federal securities and commodities laws.” In conjunction with this warning, the CFTC brought a number of virtual currency enforcement actions in January, three of which are discussed below. READ MORE
On January 18 the English Supreme Court refused to grant Comune di Prato (“Prato”), an Italian local authority with responsibility for the municipality of Prato in Tuscany, permission to appeal a 2017 decision of the Court of Appeals in favor of Dexia Creditop SpA (“Dexia”), Prato’s swap counterparty. This decision brings to an end a long-standing dispute that was one of many involving swaps entered into by Italian municipalities between 2001 and 2008, when the onset of the financial crisis triggered defaults and brought increased scrutiny to the derivatives market.
The decision of the Court of Appeals, together with the determination by the Supreme Court not to allow further appeal, may provide greater certainty as to the narrow scope of Article 3(3) of the Rome Convention, particularly in respect of derivatives agreements documented under standard documentation that are governed by English law. READ MORE
On August 28, amendments recently adopted by the Commodity Futures Trading Commission (“CFTC”) to recordkeeping obligations under CFTC Rule 1.31 are scheduled to become effective. The CFTC periodically updates this rule to take into account technological advances and modernize requirements for persons subject to recordkeeping obligations under the U.S. Commodity Exchange Act or the CFTC’s rules, known as “records entities.” In proposing these amendments earlier this year, the CFTC acknowledged that recordkeeping has “evolved significantly” since its last overhaul of Rule 1.31 in 1999. READ MORE
On July 27, the Chief Executive of the UK Financial Conduct Authority (“FCA”) announced that, after the end of 2021, the FCA would no longer use its power to persuade or compel panel banks to submit rate information used to determine the London Interbank Offered Rate, known as “LIBOR.” LIBOR serves as a benchmark rate for hundreds of trillions of dollars of securities, loans and transactions, including over-the-counter and exchange-traded derivatives. The total market of financial instruments based on LIBOR is approximately $350 trillion. READ MORE
Cleared derivatives are generally characterized as being either “collateralized-to-market” (“CTM”) or “settled-to-market” (“STM”) in connection with the mitigation of counterparty credit risk resulting from movements in mark-to-market value. Under the CTM approach, transfers of variation margin are characterized as daily “collateral” transfers, with the transferring party having a right to reclaim the collateral (a financial asset) and the receiving party having the obligation to return the collateral (a financial liability), as well as a legal right to liquidate the collateral in the event of a close-out.
Under the STM approach, variation margin reflects daily “gain” to the receiving party that is actually settled. Despite the settlement of the gain on a daily basis, the derivative’s underlying economic terms remain the same (in other words, there is no amendment or recouponing of the trade). However, unlike the CTM approach, variation margin transferred is not regarded as pledged collateral securing obligations between the parties. Rather, variation margin is deemed to “settle outstanding exposure” between them (with no right to reclaim or obligation to return the variation margin) and, after that settlement, the mark-to-market between the parties resets to zero. READ MORE
Beginning on December 15, 2017, amendments approved by the Securities and Exchange Commission (“SEC”) last year to FINRA Rule 4210 will require U.S. registered broker-dealers to collect (but not post) daily variation margin and, in some cases, initial margin, from their customers on specified transactions.
These new margin requirements apply to “Covered Agency Transactions,” which include: (i) “to-be-announced” (or “TBA”) transactions on mortgage-backed securities (“MBS”) and specified pool transactions for which the settlement date is more than one business day after the trade date; and (ii) U.S. agency collateralized mortgage obligations for which the settlement date is more than three business days after the trade date. TBA transactions account for the vast majority of trading in the sizable agency MBS market. READ MORE
On April 18, 2017, the Commodity Futures Trading Commission (“CFTC”) issued a no-action letter extending until November 7, 2017 the relief provided under CFTC Letter No. 17-05 (“Letter 17-05”), which was scheduled to expire on May 8, 2017. Letter 17-05 provides relief from certain CFTC margin requirements to certain swap dealers (“SDs”) in connection with swaps subject to the margin requirements under the European Market Infrastructure Regulation (“EMIR”). READ MORE