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Vol 21 No 9 Sept/Oct 2016

Book of the Month

Cover of Goode on Commercial Law

Goode on Commercial Law

Edited by: Ewan McKendrick
Price: £170.00

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Derivatives: The Key Principles 3rd ed

ISBN13: 9780199556366
Previous Edition ISBN: 1904501311
Published: February 2009
Publisher: Oxford University Press
Country of Publication: UK
Format: Hardback
Price: £192.50

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This book is a practical guide to derivatives, setting out a straightforward and easily understood explanation of the basic concepts, the different types of derivative product, who uses derivatives, and why and how derivatives are used. The book explains both more established products (such as futures, options, and swaps) and more innovative products (such as CPPI structures and those derivative contracts used as financing tools). The expansion of the derivative market to cover different underlying assets (such as freight, power trading, emissions trading, and hedge funds) is explored.

The author provides guidance as to the legal and regulatory treatment of derivatives. The book looks at the key documents that are used in both the exchange-based and over-the-counter (OTC) markets and explores the important materials published by ISDA .The book also discusses other related topics including the accounting and tax treatments of derivatives.

The book considers the background to current legal trends, including the developing strand of English case law on claims for the misselling of derivative products and the retail offer of derivatives, which has recently been the subject of considerable debate within the financial services industry.

The third edition includes a new discussion of the retail offer of derivatives, and discusses a greater number of derivative products (including CPPI structures, derivatives used as financing tools, power trading, emissions trading, multi-asset derivatives, fund-linked derivatives, derivatives based on "computed data", and the different wrappers" in which derivative exposures are made available).

It provides greatly expanded discussion of the ISDA documents used in the over-the-counter (OTC) market and looks in more detail at the duty of care (selling and misselling, including the recent decision in the "Springwell" litigation).

Banking and Finance
1. An overview

2. The two principle market structures
2.1. The participants in the markets
2.2. The on-exchange market
2.3. Derivatives exchanges
2.4. The OTC Market

3. Key Concepts
3.1. 'Long' and 'short'
3.2. The bid and offer spread
3.3. Tick
3.4. Margin
3.5. Example of tick and margin

4. Products
4.1. Forward contract
4.2. Futures contract
4.3. Option contract
4.4. Warrant
4.5. Forward Rate Agreement (FRA)
4.6. Swap
4.7. Cap, floor and collar contracts
4.8. Credit derivatives and synthetic CDOs
4.9. Fund derivatives
4.10. Multi-asset derivatives
4.11. The securitisation of derivatives cash flows
4.12. Repurchase and revers repurchase agreements
4.13. Financial engineering

5. Legal and regulatory
5.1. Legislation and regulation
5.2. The general prohibition
5.3. Regulated activities
5.4. Legal market structures
5.5. EU legislation

6. Risk and the on-exchange market
6.1. Recognised Investment Exchanges
6.2. Companies Act 1989
6.3. Give-up Agreements and Clearing Agreements

7. Risk and the OTC market
7.1. OTC documentation generally
7.2. ISDA
7.3. The ISDA 2002 Master Agreement and Schedule
7.4. ISDA credit support
7.5. ISDA Confirmation
7.6. ISDA Definitions
7.7. TBMA/ISMA Global Master Repurchase Agreement
7.8. Advantages and disadvantages

8. Legal Issues
8.1. Unregulated forwards and regulated futures
8.2. The swap analysed as a contract
8.3. Derivatives contracts derived as other contracts
8.4. Credit derivatives documentation
8.5. The doctrine of ultra vires
8.6. The duty of care
8.7. The construction of terms of a derivatives contract

9. End-users
9.1. The investment management industry
9.2. Hedge funds
9.3. Corporate treasuries
9.4. Prime brokerage

10. Capital
10.1. Sources of regulation
10.2. Banks
10.3. Investment businesses
10.4. The capital Accord
10.5. Basel II
10.6. Credit rating

11. Accounting and Tax
11.1. Financial reporting
11.2. The taxation of transactions: hedging or trading
11.3. The taxation of transactions: income or capital gains
11.4. The taxation of transactions: witholding tax
11.5. The substance of transactions
11.6. Records and reporting
11.7. 'Accounting-driven' transactions

12. Defining the risk map