jurisdiction x the matrix – derivatives - eea

Month Year

Jurisdiction X

The Matrix – Derivatives - EEA

DERIVATIVES WITHIN SCOPE OF

MATRIX

The following products are within the scope of this Matrix and are collectively referred to as “Derivatives”:

Financial Derivatives; Equity Derivatives; Commodity Derivatives; Credit Derivatives; Contracts for Differences (“CFDs”); [and] Exotic Derivatives.

Together, collectively referred to as “MiFID Derivatives”.

The following products are outside the scope of MiFID but are subject to the local financial regulatory regime:

Spot contracts1, commercial forward FX transactions, certain physically settled commodity transactions

Together, collectively referred to as “Non MiFID Derivatives”.

Licensing requirement Product Restrictions Contractual issues Exchanges and clearing Comments/other

Licensing restriction: The offering or provision of the following services in relation to Derivatives may trigger a licensing requirement:

dealing on own account; execution of orders on behalf of

clients/dealing as agent; reception and transmission of

orders/arranging deals; the provision of investment

advice; providing discretionary

investment management services;

safeguarding and administering/ custody; and

agreeing to carry out any of the above services.

Exemption: The key exemptions in MiFID have been implemented withchange (see Annex 3).

EU passport: No licensing requirement provided EU single passport notification for the relevant activities has been made.

Unsolicited business: An approach made by a potential investor on an unsolicited basis should not trigger a licensing requirement.

Local licensed intermediary: A locally licensed intermediary would be able to carry on the relevant

Solicitation

Marketing prohibition/restriction:There are [no] specific local marketing prohibitions/restrictions in relation to Derivatives in the jurisdiction.

Exemption(s): Any available exemptions would be given here.Territorial scope of marketing restriction: whether or not the rules have extra-territorial application will be stated here.

Difference in treatment between ETD and OTC Derivatives: The marketing prohibition/restriction applies to all Derivatives.

Legend for use in marketing material: Counsel strongly recommends that an appropriate legend be used on all marketing materials (see Annex 4).

Sanctions: Breach of the marketing prohibition/restriction may result in criminal sanctions (including imprisonment and/or a fine) and the resulting agreement being unenforceable.

Conduct issues

Conduct of business: The conduct

Recognition choice of law:Generally, the courts will uphold an express choice of law clause but may apply mandatory rules of law in certain circumstances.

Arbitration: The jurisdiction is a contracting state to the New York Convention

2. Foreign awards made

in territories of other New York Convention contracting states should, therefore, generally be enforceable. Arbitration is a preferred method of dispute resolution and counsel recommends the use of arbitration

Foreign judgments: As theBrussels Regulation

3and Lugano

Convention4 apply, a judgment given

in a relevant jurisdiction is recognised in the local jurisdiction without any special procedures. Once a judgment has been declared enforceable in the local courts, it can be enforced in the same way as a local judgment.

The European Enforcements Order procedure

5allows enforcement of

uncontested judgments of the courts of EU member states.

Validity and enforceability of Derivatives: Generally, Derivatives should be valid and enforceable and

Exchange Traded Derivatives (ETDs)

Exchanges

Key exchanges: The following are the key exchanges on which Derivatives are traded:

Exchange 1 Exchange 2

Derivatives traded: All types of Derivatives are capable of being traded on this exchange. However, as a matter of market practice a limited number of Derivatives are traded on this exchange.

Clearing provider: insert and hyperlink name of clearing provider.

Principal-to-principal market:Yes/No

Recognised market: The X market of the X stock exchange is a regulated market for the purposes of MiFID and counsel is of the view that it is an eligible market for the purposes of the UCITS IV Directive.

Rules and regulations: herehyperlink word ‘here’ to rulebook

Capacity and authority: See Annex 5 for more information.

FX Exchange controls: There are no FX exchange controls.

Client money/assets

Client money6

– MiFID has been implemented such that licensed firms must deposit client money in a central bank, a credit institution, a bank authorised in a third country or a qualifying money market fund. Client money must be segregated from the firm’s own money.

Client assets – the requirements of MiFID have been implemented. Licensed firms are required to make adequate arrangements to safeguard client’s ownership in the event of the firm’s insolvency and to prevent the use of safe custody assets without the client’s express consent.

Availability of set-off/netting

Pre-insolvency: Yes/No

Post-insolvency: Generally recognised under statutory set-off rules provided mutuality of set-off obligations. The Financial Collateral

http://fsahandbook.info/FSA/glossary-html/handbook/Glossary/C?definition=G239

http://fsahandbook.info/FSA/glossary-html/handbook/Glossary/Q?definition=G2422


activities, provided it holds an appropriate local licence.

Non local counterparties buttrading and/or clearing in jurisdiction: No licensing issues should arise if the only nexus with the jurisdiction is that the contract is traded on a local exchange or cleared through a local clearing provider (i.e. neither party is based in the jurisdiction)

Sanctions:

Sanction 1 Sanction 2 Sanction 3

of business rules only apply to a locally licensed firm, and, with some exceptions, to EEA firms establishing a branch in the jurisdiction. The conduct of business rules will generally not apply to an EEA firm providing its services under a cross-border passport.

Risks

Recharacterisation risk: Counsel is of the view that generally Credit Derivatives should not be recharacterised as contracts of insurance, provided that payment is not conditional upon the payee suffering a loss.

Gaming laws: Although untested in the courts, counsel is of the view that dealing in Derivatives should not constitute gaming or wagering there are no local gaming laws.

there is an active Derivatives market in the jurisdiction.

Local Representations, warrantiesand contractual provisions: where applicable, counsel to provide in Annex 4 (a) local representations and warranties to include in trading documentation and (b) any modification to the ISDA Schedule including (i) bankruptcy language and (ii) any other “standard” amendments usually recommended.

Existence of default fund: Yes/No?

If yes, size? Who contributes?: Members/non-

members/underlying clients If no default fund, are there any

alternatives?

Margin: Is initial and variation margin collected?

If yes, how?: Cash/non-cash securities

If yes, in whose name is it held?: Member/Clearing house]

Categories of membership and application of rules to: clearing members, non clearing members, users, end users, etc.

Direct market access: The local exchange(s) support sponsored access programmes (or similar) which allow non-members to be "sponsored" by an existing exchange member which results in the "sponsored" non-member having access to a direct connection to the Exchange's order book enabling them to trade on the trader IDs of their "sponsoring" exchange member.

Over-The-Counter (OTC) Derivatives

Clearing: [insert name and link to principal rules.] [Which products does it clear?]

Principal-to-principal market:

Directive7 has been implemented.

Other restrictions

Market abuse and insider dealing: The Market Abuse Directive

8 has

been implemented. Derivatives listed on regulated markets are within scope of the market abuse regime.

Investment restrictions: Detail any local restrictions on the ability of certain types of investor to invest in Derivatives.

Restrictions on local underliers: There are no general restrictions on investors entering into Equity Derivatives or obtaining synthetic exposure to equities listed on Exchange 1 where there is no other nexus with the jurisdiction (i.e. the Derivative is not traded or cleared in the jurisdiction and neither counterparty is located in the jurisdiction).

However, considerations as to share disclosure requirements and short selling disclosures may be relevant in respect of these Derivatives.


Yes/No

Rules and regulations: herehyperlink word ‘here’ to rulebook

Existence of default fund: Yes/No?

If yes, size? Who contributes?: Members/non-

members/underlying clients If no default fund, are there any

alternatives?

Margin: Is initial and variation margin collected?

If yes, how?: Cash/non-cash securities

If yes, in whose name is it held?: Member/Clearing house]

Other

Client assets rules: Clearing house requirements specify that client money should be held separately from own funds and client assets should be held in omnibus accounts.

Post-trading reporting: what if any reports, notifications etc need to be made post trade, to whom and timescales. Are these different or the same for ETDs and OTC Derivatives.

Counsel: Counsel X

Law Firm: Law Firm X

Contact details: T: + 12 345 6789

E: [email protected]

www.lawfirmx.com

The matrix sets out the position for “Derivatives” as defined in the matrix. There may be different rules which apply to the marketing of any other form of security, fund or investment product as well as rules relating to share disclosure where a derivative or other synthetic exposure is taken. The matrix also assumes that marketing will be done on a cross-border basis only. The matrix sets out a high level summary only of information received from counsel and more detailed legal advice may need to be obtained to ensure that the information set out herein is up-to-date and/or applicable to your circumstances. Should further advice be required, local counsel (whose details are to the left) should be contacted.

London/017/072735-00018/CXMS/AI12 AI12(LDN7W23885) 6 L_LIVE_EMEA1:12253704v1

ANNEX 1

MiFID DERIVATIVES DEFINITIONS

Where local implementation differs from MiFID any differences are highlighted in bold in the description and comments column.

Derivative type

MiFID reference

Implemented without

change?Description Comments

Financial Derivatives

Section C (4) of Annex 1

/ x Options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash.

Options, futures, swaps, forward rate agreements and other derivative contracts linked to shares or other equity securities are referred to as “Equity Derivatives”.


/ x Options, futures, swaps, forward rate agreements and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event) (“Cash Settled Commodity Derivatives”).

A commodity means any goods of a fungible nature that are capable of being delivered, including metals and their ores and alloys, agricultural products, and energy such as electricity.


/ x Options, futures, swaps and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market and/or an MTF (“Traded Commodity Derivatives”).

Commodity Derivative


/ x Options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled which are not Traded Commodity Derivatives and not being for commercial purposes, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are cleared and settled through recognised clearing houses or are subject to regular margin calls (“Non Traded Commodity Derivatives”).

A contract which is not a spot contract (see Annex 2) and which is not an Energy Balance & Supply Derivative (as to which see below) shall be considered as having the characteristics of other derivative financial instruments and not being for commercial purposes if it satisfies certain conditions9.

A contract shall be considered to be for commercial purposes and as not having the characteristics of other derivative financial instruments for the purposes of Non Traded Commodity Derivates and Exotic Derivatives if it is entered into with or by an operator or administrator of an energy transmission grid, energy balancing mechanism or pipeline network, and it is necessary to keep in balance the supplies and uses of energy at a given time (an “Energy Balance & Supply Derivative”)10.

Credit Derivative


/ x Derivative instruments for the transfer of credit risk.

Contracts for Differences

Section C (9) of

/ x Financial contracts for differences.


Derivative type

MiFID reference

Implemented without

change?Description Comments

Annex 1

Exotic derivatives


/ x Options, futures, swaps, forward rate agreements and any other derivative contracts relating to climate variables, freight rates, emission allowances or inflation rates or other official economic statistics that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of a default or other termination event), as well as any other derivative contracts relating to assets, rights, obligations, indices and measures not otherwise mentioned in Financial Derivatives, Commodity Derivatives, Credit Derivatives and Contracts for Differences above, which have the characteristics of other derivative financial instruments, having regard to whether, inter alia, they are traded on a regulated market or an MTF, are cleared and settled through recognised clearing houses or are subject to regular margin calls.

For this purpose a derivative relating to the underlying as listed in the description for Exotic Derivatives or listed below shall be considered to have the characteristics of other derivative financial instruments if one of certain conditions is satisfied11.

If the conditions referred to above are met, derivative contracts relating to the following underliers shall fall within the definition of Exotic Derivatives:

telecommunications bandwidth;

commodity storage capacity;

transmission or transportation capacity relating to commodities, whether cable, pipeline or other means;

an allowance, credit, permit, right or similar asset which is directly linked to the supply, distribution or consumption of energy derived from renewable resources;

a geological, environmental or other physical variable;

any other asset or right of a fungible nature, other than a right to receive a service, that is capable of being transferred;

an index or measure related to the price or value of, or volume of transactions in any asset, right, service or obligation.


ANNEX 2

DEFINITION OF A SPOT CONTRACT

A spot contract falls outside the scope of MiFID Derivatives. “Spot contract” means12

, a contract for the sale of a commodity, asset or right, under the terms of which delivery is scheduledto be made within the longer of the following periods:

two trading days;

the period generally accepted in the market for that commodity, asset or right as the standard delivery period.

However, a contract is not a spot contract if, irrespective of its explicit terms, there is an understanding between the parties to the contract that delivery of the underlying is to be postponed and not to be performed within the period mentioned in the first subparagraph.


ANNEX 3

KEY EXEMPTIONS

Where local implementation differs from MiFID any differences are highlighted in bold in the exemption description.

MiFID reference

Implemented without

change?Exemption

Article 2(1)(b) / x persons which provide investment services exclusively for their parent undertakings, for their subsidiaries or for other subsidiaries of their parent undertakings;

Article 2(1)(d) / x persons who do not provide any investment services or activities other than dealing on own account unless they are market makers or deal on own account outside a regulated market or an MTF on an organised, frequent and systematic basis by providing a system accessible to third parties in order to engage in dealings with them;

Note: A passive booking vehicle should fall within this exemption13.

Article 2(1)(i) / x persons dealing on own account in financial instruments, or providing investment services in commodity Derivatives or Exotic derivatives to the clients of their main business, provided that is an ancillary activity to their main business, when considered on a group basis, and that main business is not the provision of investment services within the meaning of MIFID or banking services under Directive 2000/12/EC;

Article 2(1)(k) / x persons whose main business consists of dealing on own account in commodities and/or commodity derivatives. This exception shall not apply where the persons that deal on own account in commodities and/or commodity derivatives are part of a group the mail business of which is the provision of other investment services within the meaning of MIFID or banking services under Directive 2000/12/EC; and

Article 2(1)(l) / x firms which provide investment services and/or perform investment activities consisting exclusively in dealing on own account on markets in financial futures or options or other derivatives and on cash markets for the sole purpose of hedging positions on derivatives markets or which deal for the accounts of other members of those markets or make prices for them and which are guaranteed by clearing members of the same markets, where responsibility for ensuring the performance of contracts entered into by such firms is assumed by clearing members of the same markets.


ANNEX 4

LOCAL LEGEND/REPRESENTATIONS AND WARRANTIES

1. Local legend:

[Wording]

2. Representations and warranties:

[Wording]


ANNEX 5

CAPACITY AND AUTHORITY

In order to identify the capacity and authority of a counterparty in the jurisdiction, you need to check STEP 1 (requirements for a corporate entity or a partnership).IN ADDITION, if your entity is a specific type of counterparty (e.g. bank, investment firm, insurance company, state-owned entity, fund) you need to check STEP 2.

STEP 1

Due diligence documentation

Counterparty Capacity14

Authority15

Consents and

approvals16 Documents

Mandatory/Recommended/

Market Practice17

Purpose of reviewPublicly available

Sanctions and enforceability

Colour code

Articles of Association

M/R/MP To check includes provision that entity can enter into derivatives.

Certified copy of Resolution of Board of Directors

M/R/MP To check if signatory is authorised to sign documents.

Evidence of signing authority

M/R/MP To check list of specimen signatures if not in board resolution.

Corporate entities

Legal Opinion M/R/MP To confirm capacity and signing authorities.

Red/Amber/ Green

Partnership Deed M/R/MP To check includes provision that entity can enter into derivatives.

Certified copy of Resolution of Board of Directors

M/R/MP To check if signatory is authorised to sign documents.

Evidence of signing authority

M/R/MP To check list of specimen signatures if not in board resolution.

Partnership

Legal Opinion M/R/MP To confirm capacity and signing authorities.

Red/Amber/ Green

Red The counterparty is prohibited from entering into Derivatives.

Amber The counterparty must consider certain issues before entering into Derivatives.

Green The counterparty may enter into Derivatives and there are no material issues to consider.


STEP 2

Due diligence documentation

CounterpartyStep 1

referenceCapacity Authority

Consents and

approvals DocumentsMandatory/

Recommended/Market Practice

Purpose of review

Publicly available

Sanctions and enforceability

Colour code

Bank/credit institution/ investment firm/ broker dealer

Corporate M/R/MP Red/Amber/ Green

Insurance companies

Corporate M/R/MP Red/Amber/ Green

Sovereign/state owned or sovereign owned entities/sovereign wealth fund/central bank/governmental authorities/local authorities

Corporate/Partnership

M/R/MP Red/Amber/ Green

Funds (regulated and unregulated)

Corporate/Partnership

M/R/MP Red/Amber/ Green

Individuals Not applicable M/R/MP Red/Amber/ Green


ANNEX 6

REFERENCES

1 See Annex 2 for the definition of a spot contract.2 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) - the "New York" Convention.3 Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.4 Convention of 16 September 1988 on jurisdiction and the enforcement of judgments in civil and commercial matters.5 Regulation (EC) No. 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims.6 Insert local law reference to definition of client money.7 Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements.8 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse).9 Article 38(1) of Commission Regulation (EC) No. 1287/2006.10 Please note that a contract is not considered to have to characteristics of another derivative financial instrument if it is an Energy Balance & Supply Derivative.11 Article 38(3) of Commission Regulation (EC) No. 1287/2006.12 Article 38(2) of Commission Regulation (EC) No. 1287/2006.13 An entity outside the jurisdiction which acts only as a counterparty to the Derivative but is not involved in any structuring, arranging, advising or any other investment services.14 Generally, the counterparty is free of any legal restrictions relating to capacity which would prevent it from entering into Derivatives. This column assumes that there may be restrictions in the Memorandum

and Articles of Association or other corporate documents.15 Generally, the counterparty has the requisite corporate authority and/or signing authority to enter into Derivatives subject to a review of due diligence documentation.16 Listed here are any consents or approvals required by any regulator or other third party entity before entering into Derivatives.17 “Mandatory” - a legal requirement; "Recommended" - whilst there is no legal requirement, including the relevant provision or taking certain action ensures that a safe harbour is met or the relevant action

enables a legal risk to be mitigated; "Market Practice" - practices that are reasonably expected in the financial market or markets in question and are accepted by the competent authority of that jurisdiction.