Settlement of derivative contracts: Principles from legal precedents
Practices and regulation in international derivatives markets have historically been significantly influenced by legal precedents. The Icelandic derivatives market is relatively young and legal precedents were few and far between until the collapse of the banking system in 2008, which gave rise to a...
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Research in applied business and economics
2018
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fticelandunivojs:oai:ojs.pkp.sfu.ca:article/2776 2023-08-20T04:07:33+02:00 Settlement of derivative contracts: Principles from legal precedents Uppgjör afleiðusamninga: Mat á reglum út frá dómafordæmum Arngrímsson, Arnar Davíð Sigurgeirsson, Hersir Ásmundsson, Jakob Már 2018-06-26 application/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1 isl ice Research in applied business and economics Tímarit um viðskipti og efnahagsmál https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1 Copyright (c) 2018 Tímarit um viðskipti og efnahagsmál Research in applied business and economics; Vol. 15 No. 1 (2018); 1-36 Tímarit um viðskipti og efnahagsmál; Bnd. 15 Nr. 1 (2018); 1-36 1670-4851 1670-4444 Derivatives default bank liquidation K12 K22 G01 G21 G23 Afleiður afleiðusamningar uppgjör afleiðusamninga vanefnd slitameðferð banka info:eu-repo/semantics/article info:eu-repo/semantics/publishedVersion 2018 fticelandunivojs 2023-08-01T12:29:31Z Practices and regulation in international derivatives markets have historically been significantly influenced by legal precedents. The Icelandic derivatives market is relatively young and legal precedents were few and far between until the collapse of the banking system in 2008, which gave rise to a myriad of legal disputes having to do with the settlement of derivative contracts. The purpose of this article is to review the key findings of the Icelandic courts in this regard and attempt to identify some guiding principles. A review of 35 Supreme Court rulings is covered. The disputes are divided into seven categories: (1) permissions to engage in derivative transactions, (2) reference rate for foreign exchange, (3) calculation methods, (4) force majeure, (5) netting of payments, (6) reaction to the intervention of the Financial Supervisory Authority (FSA), and (7) impact of FSA intervention. Among some of the key findings is that everyone is entitled to engage in derivative contracts and that forward contracts on stocks are not considered a complex financial instrument. The foreign exchange rate of the Icelandic Krona, as determined by the Central Bank of Iceland, should be used for reference in settlement of derivatives if another reference is not explicitly stated. A derivatives contract that has been rolled, constitutes a new contract. The intervention of the FSA in taking over individual banks and its impact on the settlement of outstanding derivatives contracts for respective banks is reviewed, including the impact of how individual banks communicated with their counterparties. The conduct of individual banks towards their counterparties differed, which impacted the settlement. Landsbanki and Glitnir both sent their clients announcements informing that outstanding derivatives contracts would be closed. However, the wording in the case of Landsbanki was somewhat unclear and had to be interpreted in the context of how individual clients responded, resulting in varying methods being applied to individual ... Article in Journal/Newspaper Iceland University of Iceland: Peer Reviewed Journals Krona ENVELOPE(12.432,12.432,65.827,65.827) |
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Open Polar |
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University of Iceland: Peer Reviewed Journals |
op_collection_id |
fticelandunivojs |
language |
Icelandic |
topic |
Derivatives default bank liquidation K12 K22 G01 G21 G23 Afleiður afleiðusamningar uppgjör afleiðusamninga vanefnd slitameðferð banka |
spellingShingle |
Derivatives default bank liquidation K12 K22 G01 G21 G23 Afleiður afleiðusamningar uppgjör afleiðusamninga vanefnd slitameðferð banka Arngrímsson, Arnar Davíð Sigurgeirsson, Hersir Ásmundsson, Jakob Már Settlement of derivative contracts: Principles from legal precedents |
topic_facet |
Derivatives default bank liquidation K12 K22 G01 G21 G23 Afleiður afleiðusamningar uppgjör afleiðusamninga vanefnd slitameðferð banka |
description |
Practices and regulation in international derivatives markets have historically been significantly influenced by legal precedents. The Icelandic derivatives market is relatively young and legal precedents were few and far between until the collapse of the banking system in 2008, which gave rise to a myriad of legal disputes having to do with the settlement of derivative contracts. The purpose of this article is to review the key findings of the Icelandic courts in this regard and attempt to identify some guiding principles. A review of 35 Supreme Court rulings is covered. The disputes are divided into seven categories: (1) permissions to engage in derivative transactions, (2) reference rate for foreign exchange, (3) calculation methods, (4) force majeure, (5) netting of payments, (6) reaction to the intervention of the Financial Supervisory Authority (FSA), and (7) impact of FSA intervention. Among some of the key findings is that everyone is entitled to engage in derivative contracts and that forward contracts on stocks are not considered a complex financial instrument. The foreign exchange rate of the Icelandic Krona, as determined by the Central Bank of Iceland, should be used for reference in settlement of derivatives if another reference is not explicitly stated. A derivatives contract that has been rolled, constitutes a new contract. The intervention of the FSA in taking over individual banks and its impact on the settlement of outstanding derivatives contracts for respective banks is reviewed, including the impact of how individual banks communicated with their counterparties. The conduct of individual banks towards their counterparties differed, which impacted the settlement. Landsbanki and Glitnir both sent their clients announcements informing that outstanding derivatives contracts would be closed. However, the wording in the case of Landsbanki was somewhat unclear and had to be interpreted in the context of how individual clients responded, resulting in varying methods being applied to individual ... |
format |
Article in Journal/Newspaper |
author |
Arngrímsson, Arnar Davíð Sigurgeirsson, Hersir Ásmundsson, Jakob Már |
author_facet |
Arngrímsson, Arnar Davíð Sigurgeirsson, Hersir Ásmundsson, Jakob Már |
author_sort |
Arngrímsson, Arnar Davíð |
title |
Settlement of derivative contracts: Principles from legal precedents |
title_short |
Settlement of derivative contracts: Principles from legal precedents |
title_full |
Settlement of derivative contracts: Principles from legal precedents |
title_fullStr |
Settlement of derivative contracts: Principles from legal precedents |
title_full_unstemmed |
Settlement of derivative contracts: Principles from legal precedents |
title_sort |
settlement of derivative contracts: principles from legal precedents |
publisher |
Research in applied business and economics |
publishDate |
2018 |
url |
https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1 |
long_lat |
ENVELOPE(12.432,12.432,65.827,65.827) |
geographic |
Krona |
geographic_facet |
Krona |
genre |
Iceland |
genre_facet |
Iceland |
op_source |
Research in applied business and economics; Vol. 15 No. 1 (2018); 1-36 Tímarit um viðskipti og efnahagsmál; Bnd. 15 Nr. 1 (2018); 1-36 1670-4851 1670-4444 |
op_relation |
https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1/pdf https://ojs.hi.is/index.php/efnahagsmal/article/view/a.2018.15.1.1 |
op_rights |
Copyright (c) 2018 Tímarit um viðskipti og efnahagsmál |
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1774719242681188352 |