Meaning The Financial Collateral Directive is an EU provision aimed at facilitating the use and enforcement of financial collateral. It establishes common principles concerning the creation and enforcement of collateral. Typically, collateral is enforced through appropriation without recourse to a court or any formal procedure. These regulations apply to financial collateral where the provider and recipient of the collateral are: A supervised institution like a […]
Bonds are issued in much the same way as a public issue of shares. A lead manager will prepare a prospectus strike the price and arrange for placement. Generally, an investment bank will advise. Larger issuers may issue their bonds in outside their home jurisdiction. An investment or merchant bank may act as lead manager to the issue. There may be several lead managers in […]
A trust may be and commonly is used in bond transactions. The trust deed protects the interest of the investor. The trust is commonly required, but not mandatory. The investors are beneficiaries under the trust, in this case. The trust company is usually a trust corporation. In monitoring the issue its role is passive rather than investigatory. The fiscal agent in contrast pays the bonds […]
Settlement finality in payment and securities settlement systems Transfers and payments of financial products must be regulated to avoid major risks, especially those linked to the insolvency of participants – in the transaction. This EU law lays down rules to minimise such risks. Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement […]
Credit rating agencies SUMMARY OF: Regulation (EC) No 1060/2009 on credit rating agencies WHAT IS THE AIM OF THE REGULATION? It seeks to regulate the activity of credit rating agencies to protect investors and European financial markets against the risk of malpractice. Its aim is to guarantee the independence and integrity of the credit rating process and to improve the quality of the ratings […]
EU rules on derivatives contracts Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories The European market infrastructure regulation (known as ‘EMIR’), lays down rules regarding over-the counter (OTC) derivative contracts, central counterparties (CCPs)* and trade repositories*, in line with the G20 commitments made in Pittsburgh in September 2009. EMIR aims to reduce systemic risk, increase transparency in the OTC market and […]
Bonds, commercial paper, medium term notes and certificate of deposits are of the same broad legal nature and format. There is a certificate or document of title by which the issuer or debtor promises to pay the bearer a specified amounts of money on a specified state. A bond when used in the context of securities is effectively a transferable loan. Some bonds may be […]
Convertible bonds give the holder the option to convert the bond into another security. This may be debt or share capital of the issuer company or of a guarantor. Most commonly the conversion is to equity. The option allows the holder to subscribe for debt or equity in the issuer company. The bond is surrendered in return for the new issue, share etc. A bond […]
The following are debt instruments with shorter maturities, generally, than bonds. commercial papers, certificates of deposit, medium-term notes, acceptance credits. Each are bearer securities negotiable by delivery. They are all debentures or acknowledgements of indebtedness in a wider sense. Acceptance credit facilities may provide short term finance through acceptance of eligible bills. Bills are bills of exchange. Acceptance credit facilities may be provided by institutions […]
The Asset Covered Securities Act 2001 to 2007 allows the issue by designated institutions of mortgage-backed securities. The legislation avoids the need for the creation of such securities by use of somewhat artificial elaborate structures in the manner set out in a separate chapter. The legislation does not cover all issuers. It applies to designated mortgage credit institutions and designated public credit institutions. Issuers must […]
Derivatives are financial products or assets whose value is indirectly derived from an underlying product or asset. The main types of financial derivatives are swaps, options, and future. Swaps involve one party exchanging an obligation for another. Interest rates and r currencies are commonly the subject of swaps. Options entitle a buyer to sell or buy an amount of an underlying assets such as a […]
The so-called over-the-counter derivatives market is significant. The value of derivative transaction runs to trillions of euro and dollars etc. many times the value of the entire economy of the world. They represent a mechanism for risk management and exchange of payment profiles in terms of risk and credit exposure. Derivatives have been criticised for their apparent part in accentuating the financial crisis. Certain investors […]
A number of types of risks are often identified in the context of derivatives. Credit risk is the risk that the counterparty will not pay when due. In the case of exchange traded derivatives, a clearinghouse may provide a guarantee for trades of its members. There has been a move towards requiring use of clearinghouses to reduce risk and deleverage following the global financial crisis. […]
Financial Collateral A Directive on financial collateral seeks to reduce credit risk in collateral financial transactions between financial institutions. The purpose is to provide for the rapid and informal enforcement of financial collateral. States may not make the creation, protection, enforceability or admissibility of financial collateral arrangement dependent on the performance of any formal act. States must ensure the entity taking collateral is able to […]