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Memorandum of Law for the International Swaps and Derivatives Association, Inc

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Memorandum of Law for the International Swaps and Derivatives Association, Inc MEMORANDUM OF LAW FOR THE INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC. Validity and Enforceability under English Law of Collateral Arrangements under the ISDA Credit Support Documents 31 October 2014 Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom Tel +44 (0)20 3088 0000 Fax +44 (0)20 3088 0088 Allen & Overy LLP is a limited liability partnership registered in England and Wales with registered number OC306763. It is authorised and regulated by the Solicitors Regulation Authority of England and Wales. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications. A list of the members of Allen & Overy LLP and of the non-members who are designated as partners is open to inspection at its registered office, One Bishops Square, London E1 6AD. Allen & Overy LLP or an affiliated undertaking has an office in each of: Abu Dhabi, Amsterdam, Antwerp, Athens, Bangkok, Barcelona, Beijing, Belfast, Bratislava, Brussels, Bucharest (associated office), Budapest, Casablanca, Doha, Dubai, Düsseldorf, Frankfurt, Hamburg, Hanoi, Ho Chi Minh City, Hong Kong, Istanbul, Jakarta (associated office), Johannesburg, London, Luxembourg, Madrid, Mannheim, Milan, Moscow, Munich, New York, Paris, Perth, Prague, Riyadh (associated office), Rome, São Paulo, Shanghai, Singapore, Sydney, Tokyo, Toronto, Warsaw, Washington, D.C. and Yangon. ICM:18929814.15 [This page left intentionally blank.] TABLE OF CONTENTS I. INTRODUCTION ..................................................................................................................... 3 II. FINANCIAL COLLATERAL ARRANGEMENTS ............................................................... 15 III. SECURITY INTEREST .......................................................................................................... 28 IV. TITLE TRANSFER ................................................................................................................. 65 V. CLOSE-OUT AMOUNT PROTOCOL ................................................................................... 75 VI. PENDING DEVELOPMENTS ............................................................................................... 76 APPENDIX A – CERTAIN TRANSACTIONS UNDER THE ISDA MASTER AGREEMENT ...... 78 APPENDIX B – CERTAIN COUNTERPARTY TYPES .................................................................... 84 APPENDIX C – EXCLUDED ENGLISH COMPANIES .................................................................... 89 APPENDIX D – RECOURSE TO THE ASSETS OF A TRUST ........................................................ 90 ANNEX 1 – ENGLISH BANK .......................................................................................................... 93 ANNEX 2 – ENGLISH INVESTMENT FIRM ............................................................................... 109 ANNEX 3 – ENGLISH BUILDING SOCIETY .............................................................................. 113 ANNEX 4 – BANKING GROUP COMPANIES AND BANK HOLDING COMPANIES ........... 121 ANNEX 5 – TRUSTEE OF AN ENGLISH TRUST ....................................................................... 125 ANNEX 6 – FRIENDLY SOCIETY ................................................................................................ 137 ANNEX 7 – CO-OPERATIVE OR COMMUNITY BENEFIT SOCIETY ..................................... 140 ANNEX 8 – STATUTORY CORPORATION ................................................................................ 143 ANNEX 9 – CHARTERED CORPORATION ................................................................................ 146 ANNEX 10 – ENGLISH INSURANCE COMPANY ........................................................................ 150 ANNEX 11 – STANDARD CHARTERED BANK .......................................................................... 168 ANNEX 12 – ENGLISH CHARITY – TRUSTEE OF AN ENGLISH CHARITABLE TRUST ..... 172 ANNEX 13 – ENGLISH CHARITY – OTHER FORMS OF ENGLISH CHARITY ....................... 174 ANNEX 14 – ENGLISH INVESTMENT FUND – OPEN-ENDED INVESTMENT COMPANY . 176 ANNEX 15 – ENGLISH INVESTMENT FUND – TRUSTEE OF AN AUTHORISED UNIT TRUST ......................................................................................................................... 182 ANNEX 16 – BANK OF ENGLAND ................................................................................................ 184 ANNEX 17 – THE UNITED KINGDOM ACTING THROUGH HER MAJESTY'S TREASURY ................................................................................................................ 185 2 I. INTRODUCTION 1. Overview and scope of issues covered by this memorandum In this memorandum we consider the validity and enforceability under English law1 of a collateral or margin arrangement2 entered into in connection with an agreement between two parties based on one of the following standard form master agreements published by the International Swaps and Derivatives Association, Inc. (ISDA): (1) the ISDA 2002 Master Agreement (the 2002 Agreement); and (2) the 1992 ISDA Master Agreement (Multicurrency – Cross Border) (the 1992 Agreement). References below to "the ISDA Master Agreement" or "an ISDA Master Agreement" apply equally, unless context otherwise requires, to an agreement based on the 2002 Agreement and one based on the 1992 Agreement. Where a distinction between the forms of ISDA Master Agreement is relevant to the analysis, we refer expressly to the relevant form.3 In this memorandum, we assume that each collateral arrangement entered into in connection with an ISDA Master Agreement between two parties is documented under one of the following standard form documents published by ISDA: (a) the 1994 ISDA Credit Support Annex (Bilateral Form) governed by New York law (the New York Annex); (b) the 1995 ISDA Credit Support Deed (Bilateral Form – Security Interest) governed by English law (the English Deed and, together with the New York Annex, the Security Documents); or (c) the 1995 ISDA Credit Support Annex (Bilateral Form – Transfer) governed by English law (the English Transfer Annex and, together with the Security Documents, the Credit Support Documents). In relation to each Credit Support Document entered into in connection with a 2002 Agreement, we assume that it has been entered into subject to the amendments set out in: (i) in the case of the New York Annex, Annex 14 of the 2002 ISDA Master Agreement Protocol published by ISDA on 15 July 2003 (the 2002 Protocol); (ii) in the case of the English Deed, Annex 16 of the 2002 Protocol; and (iii) in the case of the English Transfer Annex, Annex 15 of the 2002 Protocol. 1 England and Wales form a single legal jurisdiction. In this memorandum, a reference to "English law" is a reference to the law of England and Wales (other than legislation passed by the Welsh Assembly) and, unless context indicates otherwise, a reference to "England" is a reference to the legal jurisdiction of England and Wales. 2 "Collateral arrangement" and "margin arrangement" are commercial terms, used interchangeably in the market. In this memorandum, we use the term "collateral arrangement", which appears to be the more commonly used term. We also use the term "financial collateral arrangement", but note that this term has a specific meaning under UK legislation, as explained in part II below. 3 Other forms of master agreement are published by ISDA, but the 2002 Agreement and 1992 Agreement are the two most widely used forms of master agreement, particularly for use in connection with a financial collateral arrangement of a type considered in this memorandum. 3 A capitalised term used and not defined in this memorandum has the meaning given to that term in the ISDA Master Agreement or the relevant Credit Support Document, according to context. The term "security interest", when used in this memorandum, refers to any form of security interest that may be created under a Security Document, although the precise nature of the interest will vary according to the governing law, the nature of the assets over which security is created, and other relevant circumstances. Similarly, in this memorandum: (A) in relation to the Security Documents, the term "Security Collateral Provider" refers to the Pledgor under the New York Annex or the Chargor under the English Deed; (B) the term "Collateral Provider" (and in part II where used in respect of the Credit Support Documents, "collateral-provider") refers to the Security Collateral Provider under a Security Document or the Transferor under an English Transfer Annex; and (C) the term "Collateral Taker" (and in part II where used in respect of the Credit Support Documents, "collateral-taker") refers to the Secured Party under a Security Document or the Transferee under an English Transfer Annex. Subject to part III.2 below, the term "Collateral", when used in this memorandum, refers, in the case of each Security Document, to any securities or cash in respect of which a security interest is created by the Security Collateral Provider in favour of the Secured Party and, in the case of the English Transfer Annex, to any securities or cash transferred by the Collateral Provider to the Collateral Taker, in each case as credit support for the obligations of the Collateral Provider under the relevant ISDA Master Agreement. The issues that you have asked us to address are set out below in italics, followed in each case by our analysis and conclusions. In particular, we consider certain issues
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