Our Derivatives Group's practice has focused primarily on the use of such products by end-users including: industrial and energy corporations, insurance companies, mutual funds, depository and other financial institutions, and not-for-profit entities such as universities and pension plans. In recent years, these organizations have dramatically increased their use of a wide variety of derivative instruments, and our practice in this area has expanded to respond to the host of complex and novel legal issues raised by the dynamic world of derivatives. The following are a few of the underlying factors that we see driving the recent and future growth in this area:
- significant increases in the volatilities of interest rates, foreign currency exchange rates, and commodity prices, which have materially increased the exposures of our clients to these external financial risks;
- growth in international trade and business which necessarily introduces additional foreign currency, tax and credit risks;
- constant efforts to reduce borrowing and funding costs which have led to increases in the use of various interest rate derivatives such as structured securities and interest rate swaps; and
- ongoing balance sheet restructurings, including securitizations, which have significantly increased the complexity and number of derivative products available to investment entities.
While we do not recommend particular transactions, we believe it is critical to our legal work that we understand both the basic economics of the client's transactions and how those transactions mesh with the client's risk management or investment objectives. Our core philosophy is that if you do not understand a transaction, you cannot be confident that it is properly documented or that you have identified the significant legal risks. We also strongly believe that our multi-disciplinary approach to this complex legal area is essential to our ability to effectively and efficiently represent clients with respect to derivatives transactions.
The legal practice of the Derivatives Group encompasses the following key areas:
- Documentation and Negotiation
- Tax
- Financial Disclosure
- Appropriate Oversight Controls and Policies
- Commodities
- Regulatory Issues and Investigations
Each of these areas of our derivatives practice is discussed in the "Representative Transactions" section.
© 2008 Sutherland