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‘Targeted Touchdown’ and ‘Partial Liftoff’: Post-Crisis Dispute Resolution in the OTC Derivatives Markets and the Challenge for ISDA*

Published online by Cambridge University Press:  06 March 2019

John Biggins

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Since the 1980s, influential participants in the niche over-the-counter (OTC) derivatives markets have sought to encourage contractual standardization in the industry to mitigate the potential for unforeseen legal interruptions and ensure the enforceability of OTC derivatives contracts. The International Swaps and Derivatives Association (ISDA), a trade association and standard-setter, has spearheaded this effort; resulting in the creation and sustenance of a highly successful transnational private regulatory regime (TPRER). Most notably, ISDA has generated a standardized boilerplate contract for OTC derivatives, known as the ‘ISDA Master Agreement’. However, the TPRER within which the ISDA Master Agreement operates displays some intriguing features and paradoxes. Chief amongst these paradoxes is that, while this TPRER appears at first glance to be highly legalistic and formal, indications are that rates of formal litigation between members of the regulatory regime have traditionally been low relative to the size of the market (the total notional amount of OTC derivatives contracts outstanding at the end of 2011 was estimated at US$648 trillion).

Type
Articles
Information
German Law Journal , Volume 13 , Issue 12: 5Th CLPE Comparative Research in Law and Political Economy Network: Transnational Private Regulatory Governance: Regimes, Dialogue, Constitutionalization , 01 December 2012 , pp. 1297 - 1328
Copyright
Copyright © 2011 by German Law Journal GbR 

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128 Hazell v Hammersmith and Fulham London Borough Council & Ors [1992] 2 AC 1. For discussion see e.g., Andrew Tickle, Creative Finance and the Local State: The Hammersmith and Fulham Swaps Affair, 17 Pol. Geog. 865 (1998).Google Scholar

129 In particular section 111(1) of the UK Local Government Act 1972 which stipulated that ‘a local authority shall have power to do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions'’.Google Scholar

130 Hazell v Hammersmith and Fulham London Borough Council & Ors [1992] 2 AC 1, 36.Google Scholar

131 Ibid., 37, per Lord Templeman.Google Scholar

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133 Hudson, Alastair, Dealing with Derivatives (on file with author).Google Scholar

134 Eternity Global Master Fund Ltd. v Morgan Guaranty Trust Co. of N.Y. 375 F.3d 168, 182 (2nd Cir. 2004); Eternity Global Master Fund Ltd. v Morgan Guaranty Trust Co. of N.Y., No 02 Civ.1312 (LMM)(GWG), 2003 WL 21305355 (S.D.N.Y. June 5th, 2003); Eternity Global Master Fund Ltd. v Morgan Guaranty Trust Co. of N.Y., No. 02 Civ.1312(LMM), 2002 WL 31426310 (S.D.N.Y. Oct. 29, 2002) [hereinafter litigation].Google Scholar

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139 For discussion, see e.g., Hemel, Daniel, Empty Creditors and Debt Exchanges, 27 Yale J. on Reg. 159, 162 (2011); Jongho Kim, From Vanilla Swaps to Exotic Credit Derivatives: How to Approach the Interpretation of Credit Events, 13 Fordham J. of Corp. & Fin'l L. 705 (2008).Google Scholar

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141 CSX Corporation v the Children's Investment Fund Management (UK) LLP & Others (08 Civ. 2764 (LAK) (SDNY, 11 June 2008)).Google Scholar

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159 On a similar theme see e.g., Isabelle Huault & Hélène Rainelli-Le Montagner, Market Shaping as an Answer to Ambiguities: The Case of Credit Derivatives, 30 Org'n Stud. 549 (2009).Google Scholar

160 Black, Julia, Enrolling Actors in Regulatory Processes: Examples from UK Financial Services Regulation, Pub. L. 62 (2003).Google Scholar

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162 Particularly in Gelpern & Gulati, supra note 16.Google Scholar

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