Hunton & Williams LLP's cross-border derivatives practice advises corporate end‑users, financial entities, real estate investors, funds, benefit plans, nonprofits, government entities and other counterparties on a broad range of derivatives hedging, compliance and other matters. Our lawyers assist clients in structuring, documenting and executing derivative transactions and in establishing relationships with dealers, banks, brokers, commercial lenders, futures commission merchants, commodity pool operators and advisers. We also represent clients in corporate governance, regulatory, tax, bankruptcy and litigation matters related to derivatives, including government investigations. We handle not only swaps, futures, options and other regulated products but forward agreements, trade options and other exempt contracts as well. The derivative matters we handle are based on all types of underlying values, including securities and security indices, interest rates, currencies, foreign exchange (FX), credits, equities and commodities. Our business clients consist of public and private companies from a wide variety of industries and economic sectors, which include banking, finance, securities, commodities, investment, insurance, property management, energy, oil and gas, mining, agriculture, manufacturing, defense, construction, shipping, food service, retail, education and healthcare ventures in large, middle and smaller markets. We assist domestic and international clients, both in the United States and overseas, and our cross-border derivatives work extends from North America to Asia, Africa, South America, Europe and Australia.
We represent clients in stand-alone and structured transactions - from futures, forwards, options and commodity contracts to, swaps and security-based swaps to uniquely tailored hybrid instruments, securitizations and banking products. Our transaction work involves virtually every exposure, including environmental commodities such as emission allowances, carbon credits/offsets, renewable energy certificates, water quality improvements and other exotic or intangible values. Our lawyers have closed collateralized debt obligations (CDOs), synthetic mortgage- and asset-backed securities, insurance-linked alternative risk transfers (catastrophe or CAT bonds) and other structured cash flow security issuances plus collateralized loan obligations (CLOS), loan sales and participations and repurchase (or repo), securities forward and securities lending agreements. We also have handled hybrid financial products such as structured credit- and index-linked notes (including deposit notes), mixed swaps and tranched derivatives.
Hedging Documentation and Counterparty Risk
Members of our derivatives practice are intimately familiar with virtually every form of standardized trading documentation, including not only FIA and ISDA forms but also ABA, ASF, CREFC, EEI, EFET/IECA, IFEMA, IFXCO, MPPSA, NAESB, TBMA/SIFMA and WSPP contracts (among others). In addition, we regularly prepare, review and negotiate bespoke and other customized documents. We help clients evaluate their trading program documentation and advise on modifications to minimize risk, maximize hedging effectiveness, promote consistency across hedging platforms and satisfy obligations to third parties. Clients often look to us for guidance on common practices in regulated and over‑the-counter (OTC) markets and on typical arrangements for resolving such matters as those pertaining to netting, set-off, margin (or collateral), trading limits, termination, close-out and liquidation. Clients also seek our counsel regarding counterparty, exchange and clearing house risk, due diligence, know-your-counterparty (KYC) reviews, conflicts of interest, customer protection rules, risk mutualization avoidance, disclosure obligations, suitability determinations and antifraud measures.
Broker, Dealer and Clearing Relationships
We assist clients in establishing and maintaining prime brokerage, swap dealer, foreign exchange and futures commission merchant account arrangements. This often requires account service agreements, master agreements, confirmations and credit support annexes, protocol adherence, questionnaires and legal entity identifiers and derivatives transaction execution, give-up, clearing and other agreements. Clients seek our advice to hedge or mitigate commercial risk, obtain price transparency, achieve best execution, ensure acceptance for clearing where required, avoid clearing where it's not required or a clearing exemption is available, prevent hedging mismatches, avoid over- or under-hedging, manage trading limits and minimize hedging costs. We also counsel in connection with creating or augmenting existing capabilities, developing new products or services, increasing assets under management or expanding clients’ investor bases.
Treasury, Purchasing and Marketing
We work with the treasury departments at a number of our corporate clients in connection with their use of derivatives for financial hedging and risk mitigation purposes. Our familiarity with their banking relationships, capital markets transactions, cash management practices, securities law filings and shareholder communications enables us to offer comprehensive perspectives on clients' derivatives activities. We also work with clients’ purchasing (or supply) departments and marketing (or sales) departments in connection with their use of physically settled forward contracts and trade options for nonfinancial commodities to hedge or mitigate commercial risks, including price, availability, delivery and storage, and their use of consumer and commercial agreements, contracts and transactions. We advise clients on structuring those arrangements to obtain the benefit of the forward contract exclusion or another exemption from derivatives regulation and, also, assist by advising on settlements, book-outs, exchange agreements, novations, modifications and other actions that maintain the exempt nature of those arrangements.
We have helped dealers and other clients terminate derivative transactions, typically in cases where the counterparty became bankrupt or otherwise insolvent but also under circumstances in which it failed to make a payment or otherwise defaulted. In each circumstance, we helped clients give appropriate notices; establish amounts payable upon termination; net and set-off amounts due,liquidate and apply the proceeds of collateral and file any necessary claims against the counterparty, its estate in bankruptcy or insolvency, its bankruptcy trustee or its receiver. Additionally, we frequently advise clients on interpretational questions arising under their derivative documents, on the strategic considerations involved in dispute resolution and on negotiating the receipt of amounts payable upon termination.
Commodity Pools, Pool Operators and Trading Advisers
Changes in the law resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act caused many entities and individuals to become subject to prospective regulation as commodity pools, commodity pool operators or commodity trading advisers, including real estate investment trusts (REITs), investment funds, securitization vehicles, benefit plans and their sponsors or advisers. Members of our derivatives practice have advised clients on the applicable requirements and the available exemptions and have helped clients structure transactions to avoid commodity pool regulation. Additionally, we have sought no-action letter relief on behalf of clients from regulatory authorities, where warranted by the circumstances.
Many of our clients are regulated entities and must satisfy regulatory requirements when entering into derivative transactions in addition to those arising under the Commodity Exchange Act and federal securities laws. We advise clients on both sets of legal requirements. Regulated entities typically must address such matters as permissible activities, capital treatment, legal investment and transaction limitations as well as the requirements relating to their businesses or for avoiding registration as brokers, dealers, advisers and other market intermediaries. All clients now are subject to trading, clearing, documentation, recordkeeping and reporting requirements or must satisfy conditions for exemptions from those requirements. We help clients comply with applicable requirements such as by advising on those requirements, making mandatory filings, obtaining government and other approvals, preparing necessary documents, formulating written policies and procedures and implementing business conduct improvements and other best practices. Additionally, we review and comment on proposed regulations for clients directly and through trade organizations. In so doing, we practice before the US Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC) and other federal, state and local regulators, as well as before the National Futures Association (NFA), the Financial Industry Regulatory Authority (FINRA) and other self-regulatory organizations.
Members of our derivatives practice, in conjunction with firm bankruptcy and insolvency lawyers, have advised clients in counterparty bankruptcies, insolvencies and other restructurings. These matters involved complex legal issues concerning existing derivative and other transactions and, in some cases, used specially tailored derivatives to facilitate the restructurings. The related transactions required the invention and implementation of creative and innovative solutions to achieve a compromise and facilitate the attainment of restructuring objectives.
In recent years, litigation of derivative transactions has increased significantly. Our derivatives lawyers, in conjunction with firm litigation lawyers, have represented clients in the litigation of disputes over credit default swaps and other derivative transactions. The legal issues in those cases included interpretation of contractual provisions, validity and enforceability, collateral requirements and close-out and valuation methodology.
Members of our derivatives practice, in conjunction with firm tax lawyers, advise clients on tax implications of derivative transactions, including tax representations, tax withholding requirements, tax gross-up provisions, foreign tax treaty applicability and tax treatment as a notional principal contract (NPC) and otherwise. Among other things, we have advised clients on structuring and documenting derivative transactions to comply with US Treasury and Internal Revenue Service (IRS) guidelines.
Our derivatives lawyers actively participate in trade organizations and other industry groups related to the derivative markets. We are members of the International Swaps and Derivatives Association, Inc. (ISDA) and other organizations, and we actively participate on their committees. We also work with our clients to monitor and respond to legislative and regulatory developments related to derivatives.