Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Derivatives definition

What does Derivatives mean? Derivatives are contracts used to transfer or manage risk, whose value is determined by an underlying asset, interest rate, currency, index, commodity, security or credit event. Common types include futures, options, swaps (interest rate and currency), forwards and credit derivatives (such as credit default swaps), traded on exchanges or over the counter. Legally, derivatives create payment or delivery obligations calculated by reference to the underlying. They are typically documented under an ISDA Master Agreement with a Credit Support Annex for collateral, and depend on close-out netting upon default. Key issues include counterparty capacity and authority, governing law and jurisdiction,...

Derivatives in structured finance and securitisation: risk hedging, SPV constraints, ISDA documentation, counterparty rating criteria, and synthetic structures (CDS, CLNs, TRS)

Published by a LexisNexis Banking & Finance expert

Practice notes

What does this Practice Note cover?

derivatives are a staple of structured finance, appearing in many guises (eg swaps, options and forwards). They are commonly deployed to reshape the cash flows an issuer receives from the underlying asset pool into the revenue profile required to meet payment obligations on the securities issued to finance that asset. In practice, these arrangements align asset cash flows with liability profiles. This Practice Note sets out the main categories and purposes of derivatives in structured finance transactions. It also describes their uses within structured finance transactions, including:

interest rate swaps
currency rate swaps
credit default swaps
credit linked notes
total return swaps

A variety of institutions, such as banks and insurance companies, may serve as the swap counterparty in a structured finance transaction...

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Web page updated on 21/05/2026

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