Hedging and the documentation of over the counter derivatives

Abstract

Looking back some years, joining a specialized group of young legal professionals at ABN AMRO Bank N.V. turned out to be a life time opportunity that allowed me to learn and develop specialized knowledge in a “niche” legal practice area being concerned with derivatives trading, or “hedging”, in regulated and unregulated markets. Quietly the derivatives market has been growing over the past three decades and, arguably, speculative hedging combined with gaps in regulatory supervision and lacking risk management has contributed to the recent near melt-down of the international financial system, colloquially referred to as the “financial tsunami”. Whatever the cause of the recent troubles in the financial markets, even with respect to derivatives, the contractual agreement documenting such financial instruments is what parties take out of dusty cabinets whenever disputes arise. Herewith we are going to see what hedging and derivatives are all about and how they are documented from a practitioner hands-on perspective.