Smoothing out the rough hedges

Smoothing out the rough hedges

The English courts have long grappled with the question of whether a derivative transaction amounts to a hedging transaction – a “hedge” – or a speculative transaction.

The issue has frequently arisen in the context of challenges to the capacity of a party to enter into the derivative transaction – whether the transaction was ultra or intra vires.

More recently, the issue has arisen in the context of mis-selling cases relating to interest rate hedging products and loans with linked or embedded interest rate swaps, for example, in the context of whether the bank counterparty has made a representation to the effect that the relevant financial product amounted to a “true hedge” or a “good hedge”.

However, the English courts’ conception of what a hedge is has developed over time, and the English judiciary has not always agreed on what the features of a hedge are or whether an objective, subjective or hybrid test should be applied when deciding whether or not a transaction is a hedge.

This article by Simon Clarke at Herbert Smith Freehills will examine the courts’ approach to these issues before assessing the legal relevance of the question. Click here to read the article.

 

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About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.