Documentation and Transactions

This post ends our series critiquing the proposed definition of “unfunded commitment agreement” in re-proposed Rule 18f-4. This definition is important because it would create an exception from the Value at Risk (VaR) limitations the proposed rule would impose on “derivatives transactions” by investment companies. This post will recap the

In a previous post, we compared loan commitments, which re-proposed Rule 18f-4 would treat as “unfunded commitment agreements,” and “to be announced” (“TBA”) mortgage-backed securities (“MBS”) trades and put options, which Rule 18f-4 would treat as “derivative transactions,” to identify features that may be unique to loan commitments. Our last post showed how one

Having completed our detour into regulations and interpretations other than re-proposed Rule 18f-4, this post returns to considering possible justifications for carving out “unfunded commitment agreements” from the proposed Value at Risk limitations of Rule 18f-4. We have previously explained why the first two justification identified in the proposing release are ill-founded. Read

Not content with Steve’s detour into the relationship between Rule 2a-7 and re-proposed Rule 18f-4, we would also like to point out a set of rules under which the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) have wrestled with the distinctions between “swaps, security-based swaps and security-based swap agreements”

The Federal Deposit Insurance Corporation (FDIC) today issued an “FAQ” to financial institutions entitled, Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19).

The FDIC has highlighted the following items in respect of this FAQ:

  • The FDIC encourages financial institutions to work with customers affected by COVID-19 in a prudent manner, especially borrowers from industry sectors particularly vulnerable to the volatility in the current economic environment and small businesses and independent contractors that are reliant on affected industries.
  • A financial institution’s prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism.


Continue Reading Payment Accommodations Under Commercial Loans by Banks to Borrowers: Remember the Related Interest Rate Hedge Documentation

This post is the second in a series that we are preparing in response to questions from clients, colleagues, and contacts.  Yesterday’s post, which addressed interest rate swaps in a zero or negative interest rate environment, is available here.

In today’s post, we address considerations related to Decline in Net Asset Value (NAV) provisions in agreements that govern the trading of over-the-counter (OTC) derivatives and other financial contracts. 

As we explore in greater detail, the recent volatility across financial markets makes it more important than ever for investment managers and their clients to understand – and focus on – these fairly common contractual provisions.


Continue Reading Master Agreements and Volatile Markets: Decline in Net Asset Value Provisions

This post will address a question that we have been receiving from many contacts, clients and colleagues in recent days (particularly in light of the rate cut announced yesterday afternoon by the Federal Reserve Board).

  • What will happen to an interest rate swap in a zero or negative interest rate environment?

We first addressed this question in a May 2015 post entitled, Dealing with “Deemed Zero Rates” in Loan Agreements and Related Interest Rate Swap Documentation.


Continue Reading Interest Rate Swaps in “Zero” and Negative Interest Rate Environments

FINRA has recently submitted a filing with the Securities and Exchange Commission (“SEC”) to propose another delay to the implementation of TBA margin requirements under Rule 4210. The new implementation date would be March 25, 2021.

FINRA has requested that the deferred implementation date becomes effective immediately upon filing of the rule change by FINRA with the SEC.  
Continue Reading FINRA Rule 4210 Update: FINRA Proposes To Delay TBA Margining (Again) Until March 25, 2021

This post is Part 2 of a series of posts that addresses the impact of recent regulatory developments on the use of limited recourse provisions in futures customer agreements entered into between a futures commission merchant (an “FCM”) and an investment manager on behalf of one or more of the manager’s clients.

In this post, we provide an overview of recent regulatory pronouncements from two divisions of the Commodity Futures Trading Commission (the “CFTC”) and the Joint Audit Committee (the“JAC”) of several large futures exchanges and the National Futures Association that prohibit the use of limited recourse provisions in futures customer agreements.
Continue Reading Limited Recourse Provisions in Futures Customer Agreements: Part 2 – I Cannot Guarantee Your Client’s Losses