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GLOSSARY

Hedging definition

Published by a LexisNexis Pensions expert

What does Hedging mean?

An operation to secure an investor against a potential loss or to minimise a potential risk by offsetting the exposure to a specific risk by entering a position in an investment with the exact opposite pay-off pattern.

The term is often applied to the currency markets (currency hedging). It involves reducing the risk of unfavourable movements in commodity or security prices, or exchange or interest rates, by engaging in offsetting transactions.

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Terms and conditions—first time issuer's negotiation checklist

Terms and conditions—first time issuer's negotiation checklist What this checklist covers This checklist outlines the key points that a lawyer advising a first time issuer should check and, if necessary, seek to amend when reviewing English law terms and conditions for an issue of debt securities. This checklist contains material relevant to: • secured and unsecured debt securities • debt securities constituted by a trust deed, and • debt securities issued without trust deeds, such as: ◦ debt securities issued under a fiscal agency structure—for information on fiscal agents, see Practice Note: Role of a fiscal agent, and ◦ debt securities constituted by an instrument executed by the issuer (and guarantor, if applicable) without a trustee, of the kind used in issues of mini-bonds (a bond instrument) This checklist should be read together with Practice Note: Terms and conditions—first time issuer's guide, which: • explains the practical aspects of the key individual provisions (conditions) usually found in the terms and conditions of debt securities • compares them with the...

UK MiFID II regime—timeline

UK MiFID II regime—timeline This timeline shows key developments relating to the UK provisions which implemented the recast Markets in Financial Instruments Directive 2014/65/EU (MiFID II) and Assimilated Regulation (EU) 600/2014 (UK MiFIR) (together, the UK's MiFID II framework). For earlier developments, see: Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR)—timeline (2007–2023) [Archived]. For key developments relating to the EU’s MiFID II framework, see: EU Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR)—timeline. 2025 Date Source Document Description 9 May 2025 FCA FCA enhances access to investment researchPS25/4: Investment research payment optionality for fund managers The Financial Conduct Authority (FCA) has published policy statement PS25/4, finalising new rules to refine the investment research market by allowing fund managers to combine research and execution costs under a joint payment option, subject to defined guardrails. These changes implement recommendations from the 2023 UK Investment Research Review and feedback from consultation paper CP24/21. As the adoption of the joint payment...

Discover our 13 Checklists on Hedging

Taxation of derivatives—hedging

This Practice Note explains the basis on which profits and losses are recognised for corporation tax purposes where a derivative contract is used as a hedge. As with many things derivatives-related, it is difficult to understand the tax rules concerning derivatives involved in hedging without having at least a basic understanding of relevant accounting rules and principles. For that reason, this Practice Note deals with how hedging arrangements are accounted for before looking at the relevant tax rules. For much more general background on the accounting framework and key accounting principles relevant to the taxation of financial instruments including derivative contracts, see Practice Note: Loan relationships—accounting framework and principles.A full and complete description of relevant accounting concepts and principles is beyond the scope of this Practice Note. Any explanations of accounting rules are not intended to be exhaustive and do not constitute accounting advice. Their purpose is solely to assist an understanding of the derivative contracts taxing regime and to enable further investigation where necessary. Nothing in this Practice Note...

Guide to hedging within a financing context—for the financing lawyer

This Practice Note considers the key documentation issues in a loan financing transaction which deal with hedging. It covers the key provisions in the facility agreement, hedging strategy letters, intercreditor agreements and security documentation. It also considers fixed rate facilities and provides useful links to applicable regulatory requirements. For specific information on the ISDA documents, see Practice Note: Guide to hedging within a financing context—the ISDA documents.For information on why borrowers using hedging in lending transactions, see Practice Note: Use of derivatives to hedge against risk in a lending context—Hedging against risk in a lending context.Facility agreementHedging clauseSome facility agreements include a clause setting out what is required in terms of hedging in a particular transaction (see, for example, the drafting options in clause 8.3 (Hedging) of the Loan Market Association (LMA) Single Currency Term Facility Agreement for Real Estate Finance Multiproperty Investment Transactions with/without Observation Shift (LMA REF investment facility agreement)—the first option is to be used where hedging is to be by way of an interest rate swap...

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Special administration—witness statement in support of application for special administration

Special administration—witness statement in support of application for special administration Applicant [NAME OF WITNESS] First Witness Statement Date: [] Exhibit [XX1] Court Reference No: [INSERT COURT REF. NUMBER] [ IN THE HIGH COURT OF JUSTICE] BUSINESS AND PROPERTY COURTS [OF ENGLAND AND WALES] [IN [INSERT LOCATION]] [COMPANY & INSOLVENCY LIST (ChD)] OR [IN THE COUNTY COURT AT [INSERT LOCATION]] [BUSINESS AND PROPERTY COURTS LIST] OR [IN THE HIGH COURT OF JUSTICE] [CHANCERY DIVISION] OR IN THE MATTER OF [INVESTMENT BANK NAME] AND IN THE MATTER OF THE INVESTMENT BANK SPECIAL ADMINISTRATION REGULATIONS 2011 AND IN THE MATTER OF THE INSOLVENCY ACT 1986 _________________________________________ WITNESS STATEMENT OF [WITNESS NAME] ___________________________________________ I, [witness name], director [and chairperson] of [investment bank name] of [investment bank address] WILL SAY AS FOLLOWS: 1 I am [a director and] [the chairperson] of [investment bank address] with company number [company number] (the Company). The Company is a wholly-owned subsidiary of [insert details], a company incorporated in [location]. It is in...

Project lawyers’ completion documents list—onshore wind farm and ground-mounted solar projects—template

Project lawyers’ completion documents list—onshore wind farm and ground-mounted solar projects—template PROJECT DETAILS PROJECT NAME: [insert name of project] CLIENT: [insert name of client] [Insert name of firm] PROJECT LEAD: [insert name of client/lead partner] PROJECT PARTIES PROJECT PARTY DETAILS Account Bank(s) [insert name of Account Bank] (Company Registration No. [insert number]) whose registered office is at [insert registered office of Account Bank] Agent [insert name of Agent] (Company Registration No. [insert number]) whose registered office is at [insert registered office of Agent] Architect [insert name of Architect] (Company Registration No. [insert number]) whose registered office is at [insert registered office of Architect] Arrangers [insert name of Arrangers] (Company Registration No. [insert number]) whose registered office is at [insert registered office of Arrangers] Civil Design Consultant [insert name of Civil Design Consultant] (Company Registration No. [insert number]) whose registered office is at [insert registered office of Civil Design Consultant] Construction Contractor [insert name of Construction Contractor] (Company Registration No. [insert number]) whose registered office is...

Dive into our 6 Precedents related to Hedging

What is Partial Tear-up?

What is Partial Tear-up? What is the background to PTU? A central counterparty (or simply, a clearing house) (a CCP) clearing bilateral derivatives transactions could experience distress either due to default losses or non-default losses. Default losses occur where one or more Clearing Member(s) (CM) defaults on its obligations to the CCP—derivatives contracts are cleared through a CCP via a CM. Rebalancing tools such as Partial Tear-up (PTU) are used as part of a CCP’s default management process in its rulebook to address potential default losses by restoring a matched book of the CCP. Rebalancing tools can be used by the CCP or by a resolution authority where that CCP is in resolution. What is PTU and when is it used? Tearing up of open contracts may be either ‘full’ or ‘partial’. A partial tear-up would involve the termination of only the defaulted clearing participant's contracts so that the CCP is returned to a matched book, as opposed to termination of all open contracts covered by...

Will the UK remain a signatory to the Basle Capital Convergence Agreement of July 1988 post Brexit?

Will the UK remain a signatory to the Basle Capital Convergence Agreement of July 1988 post Brexit? The Basel Accords—Basel I, II and III The Basle (or Basel) Capital Convergence Agreement of July 1988, is the original text of the first Basel Capital Accord (Basel I), which set down an agreement among the G-10 central banks (including the UK and non-EU countries such as the United States of America and Japan) to apply common minimum capital standards to their banking industries originally to be achieved by end of 1992. It focused mainly on credit risk by creating a bank asset classification system and the appropriate risk weighting of assets. The second Basel Accord, the Revised Capital Framework (Basel II) served as an update of Basel I and focused on three main areas, minimum capital requirements, supervisory review of an institution’s capital adequacy and internal assessment process and an effective use of disclosure to strengthen market discipline and encourage sound banking practices (ie the three pillars). Following...

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Financial Services Regulation and Compliance—Investment Firms April 2025

Ireland—Banking & Financial Service analysis: This article, was written by A&L Goodbody’s Asset Management and Investment Funds Team.Domestically, the CBI updated the Guidance on Investor Money Requirements. At European level, ESMA published the annual peer review of CCP supervision, and it delivered a final report on the MiFIR review.

Financial Services weekly highlights—29 May 2025

This week's edition of Financial Services weekly highlights includes: PS7/25—PRA’s policy statement on SME and infrastructure lending adjustments under Pillar 2A; CRR3—EBA consults on amended disclosure requirements for ESG risks, equity exposures, and aggregate exposure to shadow banking entities; IOSCO’s final report and implementation guidance on revised recommendations for liquidity risk management for collective investment schemes; plus dates for your diary over the coming week.

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