This Practice Note describes: • what corporate governance is • corporate governance for private companies • the UK approach to corporate governance in relation to share schemes, including: ◦ the regulatory approach in relation to share schemes, and ◦ institutional investor guidelines • how companies monitor their compliance with the UK Corporate Governance Code (the Code), and • corporate governance for financial services firms as compared to other firms This Practice Note introduces the main concepts of corporate governance and provides links to the more detailed Practice Notes on each aspect of the regulatory and legislative elements of the UK regime and the institutional investor guidelines. What is corporate governance? Corporate governance is, broadly, the way in which companies are managed and controlled at the top level. The corporate governance regime seeks to set up a framework so as to ensure fairness of treatment among the various stakeholders in a company. The Cadbury Report of 1992 is recognised as representing the original cornerstone of corporate governance in the

Deferred share bonus: key elements Deferred share bonus plans are typically constituted by the following key elements: • they are structured as employees’ share schemes as defined in section 1166 of the Companies Act 2006 (CA 2006)—see Practice Note: The Companies Act definition of employees' share scheme and its implications • participants are typically also participants in the company’s annual bonus plan. Participation will usually be at the discretion of the directors/remuneration committee • participants may either be required to defer a proportion of their bonus under the annual bonus plan or may be invited voluntarily to defer a proportion of their bonus under the plan • participants will receive an award relating to shares in the company in lieu of the proportion of their cash bonus deferred into the deferred share bonus plan • participants will commonly be provided with the opportunity or right to receive free additional matching shares from the company which will vest at some point in the future • the additional matching shares will normally be subject to performance targets

Devolution is the process of pushing down decision-making to lower levels within the nation-state. Domestically, it refers to the process of giving the smaller nations within the UK their own parliamentary and governmental structures. This Practice Note provides an overview of the relevant law-making bodies created by statute in Scotland, Wales and Northern Ireland. Brexit impact—devolution The UK devolution structures involve complex interaction with EU law and EU competences, and are therefore impacted by the UK’s withdrawal from the EU. For general updates on the process and preparations for Brexit, see Practice Note: Brexit timeline [Archived]. For further reading on the impact of Brexit on devolution, see News Analysis: Examining the impact of Brexit and UK-wide common frameworks on devolution. Devolved institutions and their law-making powers Scotland, Wales and Northern Ireland all have unicameral legislatures consisting of elected members, some of whom also hold office as Ministers exercising executive responsibilities. The legislatures all: • scrutinise and pass legislation • hold debates both in plenary

Introduction The plurilateral agreements of the World Trade Organization (WTO) are found in Annex 4 to the Marrakesh Agreement. Plurilateral agreements cater for instances where certain Member States may agree on rules on trade in specific subjects that not all Member States may agree to. As such, plurilateral agreements come to the fore where there is no multilateral consent. These plurilateral agreements therefore only bind Member States that have signed up to them. Currently there are only two plurilateral agreements namely the Agreement on Government Procurement and the Agreement on Trade in Civil Aircraft while the International Dairy Agreement and the International Bovine Meat Agreement terminated at the end of 1997. Member States also negotiated a plurilateral agreement in trade in services, the Trade in Services Agreement, which has not yet been concluded. The WTO’s Agreement on Government Procurement Introduction Government procurement was originally omitted from the scope of the General Agreement on Tariffs and Trade (GATT) 1947. It was specifically excluded from the National Treatment principle. Article III.8(a) of the GATT 1947

What is repo? Repo is the market term for a ‘repurchase transaction’, which involves the sale of an asset by one party (the seller) to another party (the buyer) with a simultaneous agreement between the parties that the seller will repurchase the asset from the buyer at a future date for a specified price. Any asset that is capable of being transferred from one person to another may be subject to repo. The most common types of asset that are repo’d are debt securities (bonds), equity securities (shares) and other financial assets such as loans and commodities. Commodity repos give rise to particular documentary, structural and legal issues which are not covered in this Practice Note. For information on commodity repos, see Practice Note: Commodity repo transactions and true sale considerations. The principal payment and delivery obligations in a typical repo are set out in the diagram below: Purchase Date: Repurchase Date: The main features of repo therefore are: • the assets (both the original asset and

What is securities lending? A securities lending transaction typically involves the outright transfer of a security by one party (the 'lender') to another party (the 'borrower') in exchange for the outright transfer of collateral by the borrower to the lender, with a simultaneous agreement between the parties that the borrower will return the loaned security to the lender at a future date in exchange for the return by the lender to the borrower of the collateral. In 2018, the International Securities Lending Association (ISLA) released documentation which allows parties to exchange collateral by way of security (rather than outright transfer). This Practice Note focuses on securities lending transactions backed by the outright transfer of collateral, with a summary of the newer security interest structure (and the key differences as compared to using title transfer collateral) set out below. Any asset that is capable of being transferred from one party to another may be subject to a securities lending transaction. The most common types of asset

This Practice Note provides an introduction to the trading strategy known as ‘short selling’. It explains the purpose of short selling, the types of short selling, the risks associated with it and the restrictions on short selling under the UK and EU short selling regimes. What is short selling? Short selling, or 'going short', is a trading strategy whereby securities are borrowed to be sold at the current price but with the hope that the price will subsequently fall, with the aim of making a profit when they are bought back at a lower price at a later date. Short selling therefore enables investors to profit from falling securities prices. What is the purpose of short selling? A wide range of market participants use short selling as an investment technique. While hedge funds are particularly associated with the practice, due to their use of short-term trading strategies to make profits, traditional fund managers and investment banks also use short selling as an investment technique. Short selling is a legitimate investment practice in normal financial

Short selling, or 'going short', is a technique whereby traders sell shares or debt instruments ('securities') which they do not own at the time of entering into the agreement to sell, in the hope that the price of the securities will fall, enabling the short seller to buy the shares back at a cheaper price than the sale price thereby making a profit. It is in the interests of short sellers for the price of securities to fall, and it is partly for this reason that the practice has been subject to regulatory restrictions since the global financial crisis of 2008. The two principal methods of short selling are: • covered short selling—this method of short selling occurs when the short seller borrows, or agrees to borrow, the number of securities that are being sold short from a holder of the securities, so that the short seller can deliver them to a buyer at settlement. The holder in turn receives lending fees from the borrower, and • uncovered (naked) short selling–this occurs

Energy Trading in Great Britain Electricity and gas in Great Britain is traded through bilateral markets. There is no prescribed form regarding trades. However, there are two primary agreements which have become established as standard forms of electricity trading and gas trading—the Grid Trade Master Agreement (GTMA) in respect of electricity, and the Short Term Flat NBP Trading Terms and Conditions 2015 (NBP Terms) in respect of gas. Additionally, in the case of gas, the Standard Terms and Conditions for the Sale and Purchase of Natural Gas for UK Short Term Deliveries at the Beach 2015 (Beach Terms) provide for trading of gas where delivery takes place at one of the National Transmission System's entry terminals (which are known as the ‘beach’). This is in contrast to the NBP Terms, which provide for trades to take place at the National Balancing Point, which is a notional delivery point on the National Transmission System. The GTMA, NBP Terms and Beach Terms exist as standalone agreements, but also can be incorporated in modified

This Practice Note describes: • the awards available to employees under a Share Incentive Plan (SIP) • the statutory conditions which a SIP must satisfy, and • the tax benefits of SIP awards A SIP is a tax-advantaged share plan that is intended to provide employees of both listed and unlisted companies with an opportunity to acquire shares (in contrast to options over shares) in their employer (or its parent). The shares acquired are held beneficially for employees by the trustee of a UK resident trust (SIP Trustee). A SIP must satisfy the conditions set out in Schedule 2 to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) in order to qualify for the relevant tax advantages. A company can set up a SIP solely for its own employees or, if it controls other companies, extend the plan to employees of one or more of those companies (a group plan). A SIP must be operated on an all-employee, not discretionary, basis and

This Practice Note describes: • the types of option that may be granted under a tax-advantaged Company Share Option Plan (CSOP) and a tax-advantaged Save As You Earn (SAYE) scheme • the statutory conditions that CSOP options and SAYE scheme options must satisfy to obtain the available tax advantages, and • the tax benefits of CSOP options and SAYE scheme options CSOP options and SAYE scheme options are types of tax-advantaged employee share option that give the holder the right to call for those shares in a company (the Scheme Company) that are subject to the option at a future date at a price (option price) determined at the date of grant. A CSOP or SAYE scheme that is established by the parent company of a group may be extended to all or any of the companies in the group. Although there are a number of similarities between a CSOP and an SAYE scheme, there are two key differences: • the Scheme Company may choose which of the employees

Why are ISDA definitional booklets needed? The vast majority of derivative transactions are documented by standard documentation developed and published by the International Swaps and Derivatives Association, Inc. (ISDA). The key ISDA document which sets out the commercial terms of a particular trade are set out in a confirmation. For more information, see Practice Note: ISDA confirmations. A confirmation may incorporate certain defined terms by reference to booklets published by ISDA which are known as the ISDA definitions. Various ISDA definitions booklets have been published and are to be selected for incorporation into a confirmation depending on the type of derivative transaction involved (see Practice Note: ISDA definitions). When a party is documenting a credit derivative transaction, typically the confirmation will incorporate the 2014 ISDA Credit Derivatives Definitions (the 2014 Definitions). This is because by incorporating the 2014 Definitions, key terms found in the 2014 Definitions will automatically be applied to the transactions documented by the confirmation which leads to greater standardisation of those types of transaction. What