Equity derivatives—France—Q&A guide
Equity derivatives—France—Q&A guide

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • Equity derivatives—France—Q&A guide
  • 1. Other than transactions between dealers, what are the most typical types of over-the-counter (OTC) equity derivatives transactions and what are the common uses of these transactions?
  • 2. May market participants borrow shares and sell them short in the local market? If so, what rules govern short selling?
  • 3. Describe the primary laws and regulations surrounding OTC equity derivatives transactions between dealers. What regulatory authorities are primarily responsible for administering those rules?
  • 4. In addition to dealers, what types of entities may enter into OTC equity derivatives transactions?
  • 5. Describe the primary laws and regulations surrounding OTC equity derivatives transactions between a dealer and an eligible counterparty that is not the issuer of the underlying shares or an affiliate of the issuer? What regulatory authorities are primarily responsible for administering those rules?
  • 6. Do securities registration issues arise if the issuer of the underlying shares or an affiliate of the issuer sells the issuer’s shares via an OTC equity derivative?
  • 7. May issuers repurchase their shares directly or via a derivative?
  • 8. What types of risks do dealers face in the event of a bankruptcy or insolvency of the counterparty? Do any special bankruptcy or insolvency rules apply if the counterparty is the issuer or an affiliate of the issuer?
  • 9. What types of reporting obligations does an issuer or a shareholder face when entering into an OTC equity derivatives transaction on the issuer’s shares?
  • More...

This Practice Note contains a jurisdiction-specific Q&A guide to equity derivatives in France published as part of the Lexology Getting the Deal Through series by Law Business Research (published: March 2020).

Authors: Latham & Watkins LLP—Thomas Vogel; Suzana Sava-Montanari

1. Other than transactions between dealers, what are the most typical types of over-the-counter (OTC) equity derivatives transactions and what are the common uses of these transactions?

The market for OTC derivatives transactions in France is well established and equity derivative products are routinely used in the implementation of stake-building transactions, equity price risk hedging strategies and share repurchase schemes. 

Typical equity derivatives products used by issuers on the French market include (but are not limited to):

  1. call options, put options and total return swaps to hedge equity price risks on a bespoke basis;

  2. funded collar in the context of the leveraged acquisition of a stake in a publicly listed company involving an embedded hedge to the market price of the equity purchase (often on a tranched basis);

  3. unfunded collar in the context of the disposal of a stake in a publicly listed company involving an embedded hedge to the market price of the equity disposal (often on a tranched basis);

  4. prepaid equity forward in the context of share buy-backs involving a forward transaction that is settled on the basis of the discounted volume-weighted average price of the shares

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