Practical Derivatives: A Transactional Approach 3rd Edition

Book Preface

Each edition has accompanied very different derivatives markets. The first edition was published when the derivatives markets were buoyant; the book was prefaced by a future general counsel of the ‘International Swaps and Derivatives Association Inc’ (ISDA), who wrote: “Now is an interesting time to be a derivatives lawyer. The situation has been this way for many years and does not look like changing.” While we can repeat those words again with vigour in 2017, the second edition of Practical Derivatives was published in December 2010 as the derivatives markets were recovering slowly from the 2007/2008 financial crisis. In the aftermath of the crisis, the global leaders at the G20 summit in Pittsburgh in 2009 decided to introduce a plethora of regulatory initiatives to ensure that such a crisis would not happen again. Like a phoenix rising from the ashes, the derivatives markets have been making a steady come back ever since, as both market participants and regulators realised the benefits offered by different derivatives products: they help pensions funds manage their liabilities to pensioners, they offer protection to borrowers against rises in interest rates, they even help fight global warming and climate change through emissions trading.

While the years spanning the three editions of the book have been a genuine roller coaster, the derivatives markets have matured considerably over the period. This is reflected in each edition. Thus, a relatively short chapter on proposed regulatory changes in the first edition is now much longer, and is complemented by a different chapter on regulatory-driven, newly developed documentation for cleared over-the-counter derivatives. Numerous other new industry standard forms have also been published which we also cover in this new edition. Most notably, the credit derivatives markets have changed beyond recognition with the implementation of the new 2014 ISDA Credit Derivatives Definitions. The securities finance markets developed further as the new versions of the Global Master Repurchase Agreement and Global Master Securities Lending Agreement are gaining popularity. This edition also covers standard documentation and market conventions for well-established derivatives classes such as equity derivatives, commodity derivatives (including designated chapters on emissions trading, weather derivatives and energy derivatives), as well as the ever-present interest rate and foreign exchange derivatives products. In addition to discussing the usual English law ISDA framework, this edition also covers market standard German derivatives documentation. In short, the purpose of this book is to provide a practical introduction and overview of all current trends in derivatives, including – in particular – their transactional, regulatory and documentation-related aspects.

The co-editors have enjoyed working with the book’s authors immensely, as well as writing and co-writing their own contributory chapters. Edmund Parker would like again to thank his amazing wife Panthea and children Amir, Cameron, Sienna and Cordelia for all their support during the production of this book. Marcin Perzanowski would like to thank Alina, his wife, for her love, understanding and mental support to become more efficient; and Alicja, his daughter, for her patience when her dad used his paternity leave for reviewing the final edits to this book