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A new approach to close-out netting legal opinions in respect of OTC derivatives and securities financing transactions

Author

Listed:
  • Datoo, Akber

    (Founder and CEO, D2 Legal Technology, Professor, School of Law, University of Surrey, UK)

  • Williams, Paul

    (PhD student, University of Surrey, UK)

  • Whiteley, Rhodri

    (Undergraduate student, University of Oxford, UK)

Abstract

Close-out netting has been, and remains, crucial to the success of capital markets transactions such as OTC derivatives. A key credit risk mitigant, it has significant regulatory capital impact for prudentially regulated financial firms if they have obtained reasoned legal opinions confirming the enforceability of the close-out provisions of the relevant master trading agreement. These legal opinions are, however, complex and extremely nuanced, resulting in excessive costs in reviewing and (sometimes incorrect) application of the advice they provide. This paper considers the inherent challenges in the review and application of these legal opinions and whether they could perhaps be partly expressed in formal logic to address these challenges.

Suggested Citation

  • Datoo, Akber & Williams, Paul & Whiteley, Rhodri, 2023. "A new approach to close-out netting legal opinions in respect of OTC derivatives and securities financing transactions," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 15(3), pages 260-277, June.
    • Handle: RePEc:aza:jsoc00:y:2023:v:15:i:3:p:260-277
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    More about this item

    Keywords

    close-out netting; ISDA; legal opinions; regulatory capital; automation; derivatives;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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