Cadwalader, Wickersham & Taft LLP
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5 Contributions by Cadwalader, Wickersham & Taft LLP Experts
PRACTICE NOTES
This Practice Note sets out a clear overview of how UK and EU legal frameworks are developing to accommodate digital bonds. It explains key terminology and the digital bond transaction lifecycle, covering the principal documents needed for issuance, with emphasis on smart contracts. It also signposts what practitioners should consider when engaging in digital bond transactions.
Summary
Digital bonds are now legally recognised in the UK and EU, provided the issuance structure complies with the relevant securities regime, the Prospectus Regulation and/or Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA), and the underpinning distributed ledger technology (DLT) infrastructure falls within the scope of the competent regulator or sandbox. Practitioners should determine early whether an instrument is a native digital bond or a tokenised form of a traditional bond, as that choice shapes property law status, custody and settlement exposure, and undertake regulatory mapping at the
Banking & Finance
PRACTICE NOTES
What does this Practice Note cover?
This Practice Note explains the documentation needed to set up and run a derivatives clearing arrangement operating under the principal model (see: ‘Two main models of clearing’ below), as typically and widely applied in the EU and UK. It sets out the legal and operational architecture for recording both the Client Transaction (defined below) and the linked CCP Transaction (defined below), covering the deployment of standard industry templates, collateral mechanisms, and various account segregation approaches.
How is clearing achieved?
Clearing is the mechanism by which a central counterparty (CCP) serves as an intermediary for financial market trades, seeking to assure and reduce the risk on the transaction between ‘buyer’ and ‘seller’. In practice, clearing occurs via a structured workflow encompassing trade submission, validation, and novation by a CCP. After execution, a trade is routed to the CCP through a
Banking & Finance
PRACTICE NOTES
What is a clearing house?
The clearing obligation set by the European Markets Infrastructure Regulation (EU) No 648/2012 (EU EMIR) and, from IP completion day (31 December 2020) in the UK, by assimilated Regulation (EU) 648/2012 (UK EMIR), requires that all eligible derivatives are sent for clearing via a central counterparty (a clearing house, or CCP). For more on the obligation, see Practice Note: Clearing obligation.
EU EMIR was reviewed in 2019; the revised framework, EU EMIR REFIT (Regulation (EU) 2019/834), has applied since 17 June 2019.
In the UK, UK EMIR substantially carries across the EU EMIR Refit changes that were operative immediately before IP completion day.
EU EMIR is further amended by Regulation (EU) 2019/2099 (EU EMIR 2.2) concerning procedures and authorities for CCP authorisation and the requirements for recognising third-country CCPs, effective from 1 January 2020. These amendments form part of EU
Banking & Finance
PRACTICE NOTES
Clearing requirements have brought about significant changes to derivatives documentation.
Uncleared derivatives remain subject to an International Swaps and Derivatives Association (ISDA) Master Agreement together with a Credit Support Annex, whereas cleared derivatives call for additional paperwork, including:
clearing agreements
give-up agreements
collateral transformation agreements
To reduce the documentation burden of putting clearing arrangements in place, and to help with compliance with the new derivatives rules, the industry has produced standard forms. These encompass classification letters and delegated reporting agreements (both available from the ISDA website), plus client clearing documentation for both US and non-US platforms, as well as a range of protocols and standard amendment agreements.
For more information on documenting clearing relationships, see Practice Note: Documenting a derivatives clearing relationship—EU and UK platforms. This Practice Note sets out the key terms of the 2017 ISDA/Futures Industry Association (FIA) Cleared Derivatives Execution Agreement (the
Banking & Finance
PRACTICE NOTES
This Practice Note looks at Term Loan B (TLB) facilities, which often feature as a senior tranche within syndicated loans in leveraged financings. TLBs are long-established in the US market and are increasingly seen in the European lending market for institutional investors. It examines the structure of a typical TLB and how it diverges from traditional European leveraged loans, before setting out the key features. This Practice Note assumes some understanding of leveraged finance. For introductory information, see: Introductory guide to acquisition finance. For explanations of common terms, see Practice Note: Glossary of acquisition finance terms and jargon.
What is a Term Loan B?
In lending markets, ‘Term Loan B’ or ‘TLB’ (short for Term Loan Bullet) describes a tranche of senior secured credit facilities made available to a borrower and intended to be syndicated in the institutional loan market. They are usually
Banking & Finance
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