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The Post-Reform Guide to Derivatives and Futures

Wiley Finance, Band 565 1. Aufl.

von: Gordon F. Peery
60,99 €
Verlag:	Wiley
Format:	EPUB
Veröffentl.:	04.01.2012
ISBN/EAN:	9781118205426
Sprache:	englisch
Anzahl Seiten:	384

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Titelbeschreibung

An in-depth look at the best ways to navigate the post-reform world of derivatives and futures The derivatives market is one of the largest, and most important financial markets in the world. It's also one of the least understood. Today we are witnessing the unprecedented reform and reshaping of this market, and along with these events, the entire life cycle of a derivatives transaction has been affected. Accordingly, nearly all market participants in the modern economy need to view the handling of risk by derivatives in a very different way. Many aspects of financial services reform are based on a belief that derivatives caused the Great Recession of 2008. While the difficulties we now face cannot be blamed solely on derivatives, the need to understand this market, and the financial products that trade within it, has never been greater. The Post-Reform Guide to Derivatives and Futures provides straightforward descriptions of these important investment products, the market in which they trade, and the law that now, after July 16, 2011, governs their use in America and creates challenges for investors throughout the world. Author Gordon Peery is an attorney who works exclusively in the derivatives markets and specializes in derivatives and futures reform and market structure. Since representing clients in Congressional hearings involving Enron Corp., he has developed extensive experience in this field. With this guide, he reveals how derivatives law, and market practice throughout the world, began to change in historic ways beginning in 2011, and what you must do to keep up with these changes. <ul> <li>Explains what derivatives and futures are, who trades them, and what must be done to manage risk in the post reform world</li> <li>Accurately reflects the futures and derivatives markets as they exist today and how they will be transformed by the Dodd-Frank Wall Street Reform and Consumer Protection Act</li> <li>Highlights the risks and common disputes regarding derivatives and futures, and offers recommendations for best practices in light of the evolving law governing derivatives</li> </ul> The financial crisis has changed the rules of Wall Street, especially when it comes to derivatives and futures. The Post-Reform Guide to Derivatives and Futures will help you navigate this evolving field and put you in a better position to make the most informed decisions within it.

Inhaltsverzeichnis

Preface xiii Acknowledgments xix Introduction 1 Part One The Crises That Led to Derivatives Reform 15 Chapter 1 Seven Causes of the 2008 Market Crises 17 Ignoring the Warning Signs 18 More than Seven Causes of the 2008 Market Crises 20 An Incomplete Response to Problems Exposed in the Enron Bankruptcy 26 Enron Finance Used by Banks and the Lack of Regulation 29 The Absence of Effective Regulation 30 The Shadow Banking System 34 Development of an Unregulated Global Derivatives Market 39 The Rise of Credit Derivatives and the Credit Default Swap 44 Private-Label Residential Mortgage-Backed Securitization 45 U.S. Policy Fostering Home Ownership and GSE Mismanagement 47 Derivatives and Structured Products Accounting Practices 49 Notes 52 Chapter 2 The Crises and Reform Timeline 55 March 17, 2008: Bear Stearns Is Sold 57 March 27, 2008: Barack Obama Introduces Reform Principles 58 September 15, 2008: A Bankrupt Lehman Brothers 59 November 2008 to January 2009: American Leadership Ascends 60 March 26, 2009: Geithner Provides Testimony to Congress on Reform 60 May 13, 2009: Geithner Writes a Letter to Harry Reid 61 June 2, 2009: An Early Voice Speaks Out against the Clearing Mandate 61 June 22, 2009: American Corporations Lobby against Central Clearing Mandates for OTC Derivatives 62 July 22, 2009: Introduction of Legislation Favoring Exemptions to the Clearing Mandate 62 July 30, 2009: Introduction of Broad Outlines of the New Law 63 September 8, 2009: The Industry Demonstrates Commitment to Centralized Clearing 63 October 2, 2009: House Releases Draft of OTC Derivative Legislation 63 November 11, 2009: Senate Releases Draft of OTC Derivative Legislation 64 December 11, 2009: House Passes the Wall Street Reform and Consumer Protection Act of 2009 64 January 1, 2010: The New York Fed Publishes The Policy Perspectives on OTC Derivatives Market Structure 65 April 7, 2010: Financial Crisis Inquiry Commission Begins Hearings 65 April 16, 2010: Senator Lincoln Introduces the Wall Street Transparency and Accountability Act of 2010 66 April 22, 2010: President Obama Returns to Cooper Union to Speak on Reform 66 April 26 to 27, 2010: Senate Votes to Delay Debate on Derivatives Reform 67 April 27, 2010: The Goldman Hearing 67 April 28, 2010: Senate Votes Again to Proceed with Financial Services Reform 70 May 20, 2010: Senate Passes Its Version of the Legislation 70 June 30, 2010 and July 15, 2010: Congress Approves Legislation and Seeks the President’s Approval 71 July 21, 2010: President Obama Signs Dodd-Frank into Law 71 U.S. Rule Making in 2010 and 2011 73 U.S. Reform Blazes the Trail for Global Derivatives Reform 79 Notes 80 Part Two Derivatives Reform 83 Introduction to Part Two 83 Chapter 3 Introduction to Futures, Margin, and Central Clearing 85 Three Crises and the Need for the Futures Model 87 A Brief History of Futures Contracts and Markets 92 The Commodity Futures Modernization Act of 2000 98 Introduction to the Futures Model and Basic Futures Concepts 100 Regulation of Futures 112 A Futures Contract in Action 114 Default by a Clearing Member in the Futures Model 117 Global Reform and the Futures Model 120 Notes 126 Chapter 4 U.S. Derivatives Law in Title VII of Dodd-Frank 131 Organization of Dodd-Frank 131 Introduction to Titles VII and VIII 134 The Approach to Understanding New Derivatives Law in the United States 136 Products 137 People 147 Taxpayers 153 Whistleblowers 169 Platforms 170 Notes 175 Chapter 5 Title VIII of Dodd-Frank 177 Opposition to Title VIII 178 Before Title VIII 180 What Exactly Does Title VIII Set into Motion and When? 182 What Is a Systemically Important Activity? 183 Practical Results of the New Law 184 Notes 186 Chapter 6 A Primer on Legal Documentation 187 Background 190 “Let’s Use an ISDA” 191 History of the ISDA 194 Basic OTC Architecture 195 The ISDA Documentation in Practice, and Problems in 2008 202 Glossary 208 Notes 210 Chapter 7 The Life Cycle of a Cleared Derivatives Trade 211 Step One: Legal Documentation 211 Step Two: Trade Execution via an SEF, SB-SEF, or DCM 215 Step Three: Alleging and Affirming a Trade; Reporting in Real Time 221 Step Four: The FCM Take-Up 222 Step Five: Trade Is Centrally Cleared 223 Step Six: The Trade Is Reported for the Second Time 225 Notes 226 PART THREE Trading Before and After Reform 227 Chapter 8 The History of Derivatives and Futures 229 The Earliest Derivative 230 Trees, Forests, and Wildfires 231 Did They Exist in Antiquity? 233 OTC and Exchange Derivatives 233 Back to Biblical Times 234 The Dark Ages and Medieval Europe 239 The Muslim Empire 240 Development and Early Use of the Bill of Trade or Exchange 241 After the Protestant Reformation 244 An Early Sighting of the Term Commodity Pools 249 Ten Wise Men 250 The Modern Era Begins in the States in 1848 258 Early-Twentieth-Century America 259 1907 Bankers Panic 260 S&Ls and Mortgage Finance Functions Well Before Abuses 268 The Creation of Fannie and Freddie 268 Disco, Dealers, Swaps, and Redlining in the 1970s 269 U.S. Regulators Formally Recognize Swaps 273 The Birth of the OTC Market 274 The Evolution of Options Markets 275 The Futures Trading and Practices Act and the 1993 Swaps Exemption 276 ISDA 277 The 1987 Crash and 1990s Crises 279 The Commodity Futures Modernization Act of 2000 286 Enron Loophole 287 The First Decade of the Twenty-First Century 288 Notes 289 Chapter 9 Market Structure Before and After 2010 299 Ancient Commodity Markets 299 Earliest Modern Exchanges 300 The Great Depression and Bucket Shops 301 Open Outcry and Pits Give Way to the Machines 302 Reform of U.S. Market Structure 305 Derivative Clearing Organizations (DCOs) 307 Swap Data Repository 308 Market Participants in the OTC Derivatives Trade 309 Notes 311 Part Four Continuing Education 315 Chapter 10 Survey of Derivatives 317 Overview of the Strategies and Trade Structure 319 Early Derivatives and the Beginnings of the OTC Market 320 Forwards versus Options 320 Option Basics 322 Options Pricing 324 Basic Option Strategies 326 Exchange-Traded Options 328 Swaps Follow Options in the Evolution of Derivatives 329 Credit Derivatives 330 Credit-Linked Notes and Other Securities 336 Total Return Swaps 336 Interest Rate Swaps 338 Equity Swaps 340 Currency Derivatives 341 Property Derivatives 342 Commodity Derivatives 344 Energy Swaps 345 Structured Products, Securitization, CDOs, and CDOs Squared 346 Exchange-Traded Derivatives: Futures and Other Listed Products 348 Additional Resources 349 Online Resources 349 Glossaries 350 Notes 350 About the Author 351 Index 353

Autorenportrait

GORDON F. PEERY has lectured in London, Hong Kong, Toronto, Brunei, Kuala Lumpur, and the United States on the 2008 market crises and derivatives reform. Since representing a leading investment bank in televised Enron hearings in Congress, Mr. Peery developed a global legal practice exclusively devoted to derivatives and futures clients. In his seventeenth year in large firm legal practice, Mr. Peery is a partner who counsels governments, sovereign wealth funds, international investment advisors, states, counties, global investment management clients, funds, managed accounts, real estate firms, energy companies, and individuals as a leader within the Derivatives and Structured Products Practice of K&L Gates LLP, one of the ten largest law firms in the world. Mr. Peery has actively contributed to International Swaps and Derivatives Association, Inc. (ISDA) and the Futures Industry Association (FIA) working groups and has taught for ISDA. He has helped shape the next generation of derivatives and futures documentation and has authored or coauthored over thirty articles on derivatives and futures. He holds degrees from Vanderbilt Law School (JD, recipient of the endowed Bennett Douglas Bell Memorial Award) and the University of Southern California, where he graduated with a double-major, magna cum laude, as a member of Phi Beta Kappa.

Back cover copy

Derivatives law and market practice continue to change in historic ways since the Global Recession of 2008. Today there is no aspect of our financial system that evolves more dynamically than the derivatives market. Even though this market is arguably the largest and most powerful in the world, it is also the least understood. This is due to the arcane language that derivative practitioners frequently use, the complexity of these financial instruments, and the continuous evolution of the markets in which they trade. The need to understand derivatives has therefore never been greater. This text is designed to meet that need in an understandable way. Since his work in Congressional hearings years ago involving derivatives traded by Enron Corp., author Gordon F. Peery developed a specialty in the legal aspects of futures and derivatives. As a leading thinker and counselor in derivatives reform, Peery reveals how derivatives law and market practice began to change in historic ways in 2011. Engaging and informative, The Post-Reform Guide to Derivatives and Futures: <ul><li> Explains what derivatives and futures are, who trades them, and how this trading will be transformed at the direction of the leaders of G20 countries</li> <li> Illustrates how high-profile failures over the years involving Long-Term Capital Management L.P., The Bear Stearns Companies, Inc., and Lehman Brothers Holdings Inc., compelled lawmakers to transform the OTC derivatives market into a market that resembles the futures market</li> <li> Provides an anatomy of a cleared derivative, illustrating each stage in its life cycle</li> <li> Dispels the myth that derivatives caused the 2008 market crises and explains how that myth played a role in reform</li> <li> Presents a panoramic historical survey of derivatives, from those used thousands of years ago to the present, and concludes with resources for monitoring today’s rapidly evolving law and practice</li></ul> The Post-Reform Guide to Derivatives and Futures is the first comprehensive treatment of OTC derivatives reform that includes historical and practical reference points. It will enable readers of all experience levels to understand the evolution of post-reform derivative markets.