As the EU and UK continue to negotiate the terms of a trade deal, clients should continue — or begin — thinking about the impacts Brexit may have on their derivatives documentation. Most commonly, to help mitigate the potential impacts of Brexit, some banks might begin or continue to reach out to counterparties to proactively make certain amendments to their ISDA Master Agreements.
These amendments could take the form of migration of trades through entering into new derivatives contracts with banks’ EU affiliates or subsidiaries (“novations”) as well as the incorporation of regulatory provisions into ISDA Master Agreements to address Brexit. To the extent that your bank reaches out to you to incorporate certain provisions into your trading agreement to address Brexit, it is important to do so in order to avoid any disruption to new or existing trades. If you are in receipt of an updated trading agreement or novation documentation from a bank counterparty, please forward this to your Chatham Relationship Manager to ensure Chatham’s systems are updated to reflect accurate information. Brexit also has the potential, albeit unlikely, to trigger certain Termination Events and Events of Default in ISDA Master Agreements and could lead to uncertainty in the interpretation or application of jurisdictional clauses in parties’ ISDA Master Agreements and other documentation.
The likelihood of each of these scenarios will depend on the particular parties’ specific circumstances, as well as the exact manner in which Brexit ultimately unfolds. More detailed scenarios are included in ISDA’s Brexit FAQs, which are updated periodically. To discuss the specific impacts that Brexit might have on your derivatives documentation, please reach out to your Chatham representative.
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal/notices/.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 20-0023