What does this Practice Note cover? This Practice Note provides high level information on the clearing of over-the-counter (OTC) derivative contracts under Assimilated Regulation (EU) 648/2012 (UK EMIR) . This Practice Note includes information on: • what over-the-counter (OTC) derivative contract clearing involves • the mandatory clearing obligation under UK EMIR • the classes of OTC derivative contracts that are subject to the mandatory clearing obligation • who is required to clear • exemptions from the clearing requirement • how clearing operates under both the principal and agency models • the documentation required for a clearing relationship, and • what indirect clearing is What is OTC derivative clearing? Clearing is a process which eliminates the normal risk that a party to a derivatives transaction will default. The main parties involved in the clearing process are: • a financial institution known as a clearing house or central counterparty (CCP), and • other financial institutions, usually banks or brokers, which meet the financial and other criteria of the clearing house and enter into a clearing

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 the clearing service, across all participants, essentially closing the service (full tear-up),

Nature of Products Liability Insurance Products Liability insurance is a type of public liability insurance which typically covers sums which the assured: • becomes legally liable to pay • to a third party other than an employee • as damages or compensation for • death, personal injury or property damage • happening in connection with the assured’s business, and • caused by a Product supplied by the assured Legal liability The policy only responds to legal liability. Ex gratia payments or sums paid for commercial expediency are not covered. The underlying purpose of the policy is to cover tortious liability in negligence, not general contractual liability, although strict liability under the Consumer Protection Act 1987 is included. Some policies also cover contractual liability where there is a parallel tortious duty. To a third party other than an employee Liability to employees is invariably covered separately by compulsory Employers’ Liability insurance. Damages/compensation Whether exemplary or punitive damages are covered, it depends on the wording of the policy. Exemplary damages are generally covered unless specifically

Nature of public liability insurance Public Liability insurance covers the assured’s liability to the public at large. Typically, it covers sums which the assured: (i) becomes legally liable to pay (ii) to any third party other than an employee (iii) as damages or compensation for (iv) death and personal injury, property damage or interference with certain property rights (v) happening in a specified context. Public Liability insurance is not statutorily compulsory but is plainly a sensible precaution if the assured’s activities are likely to give rise to claims or if its ability to satisfy claims is limited. Accordingly, many companies take out a combined business insurance policy which includes Public Liability, Employers’ Liability and Products Liability insurance. Likewise most domestic household policies routinely include an element of Public Liability insurance. (i) Legal liability The policy only responds to legal liability. Ex gratia payments or sums paid for commercial expediency are not covered. The underlying purpose of the policy (as demonstrated by the nature of the risks insured) is to cover tortious liability in negligence,

This Practice Note provides an overview of the EU State aid rules, and specifically what constitutes ‘aid’ for the purposes of Article 107(1) TFEU. Overview of the EU State aid rules Article 107(1) TFEU contains a general prohibition on the granting of State aid that distorts or threatens to distort competition within the EU by favouring certain undertakings or the production of certain goods. The prohibition on aid essentially seeks to ensure a level playing field for businesses within the EU, requiring any aid measures to be notified by the granting Member State governments and to be approved by the European Commission (Commission) before being put into effect. Article 107(2) and (3) TFEU list certain types of aid measure that will generally be considered compatible with the EU internal market, and therefore approved by the Commission. These include aid ‘having a social character, granted to individual consumers, provided it is granted without discrimination related to the origin of the products concerned’ (Article 107(2)(a)); and ‘aid to promote the economic development of areas where the standard of living is abnormally

The flowchart below sets out how to spot State aid

It is common knowledge that value added tax (VAT) is a tax which increases the price of goods and services that consumers in the UK buy. For a tax lawyer, before going into the detail of when it applies and how it is administered, it is important to understand more about what it is doing. Where does VAT come from? There are many different types of value added or sales taxes around the world. The UK VAT system is derived from the European Union (EU). The EU common system for VAT is set out in Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the VAT Directive). It is a common system because it requires member states of the EU to bring in laws which implement the system. However there are a number of areas within the VAT system where member states have choices as to whether and how to implement the system. The most significant of those choices is on the rate of VAT. The common system for VAT set out in the

Public authorities generally Public authorities are constrained in their actions as they are required to act in accordance with their statutory objectives and duties. As Lord Templeman indicated in Hazell v Hammersmith and Fulham LBC: ‘…a local authority, although democratically elected and representative of the area, is not a sovereign body and can only do such things as are expressly or impliedly authorised by Parliament.’ Judicial review is a process, allowed for under CPR 54.1, by which the exercise of public functions is monitored and which makes the public authority accountable for their decisions, acts and omissions in the event that they have acted unreasonably and/or outside of their power. The key pre-requisites of a judicial review are that the defendant is a public authority and the action complained of has occurred when exercising a function public in nature. The complainant must have a sufficient interest in the matter, however, this test is applied in a liberal manner, and only so-called prerogative remedies are available (a quashing order, a prohibiting order or a mandatory

What is Welsh law? Wales has shared a legal system (being the legislature, laws and the jurisdiction of courts to enforce those laws) with England for nearly 500 years. The concept of ‘Welsh law’ as separate from the law of England and Wales is a relatively recent development. The 1997 devolution referendum led to the Government of Wales Act 1998 (GWA 1998), which created a National Assembly for Wales (subsequently renamed the Welsh Parliament or Senedd Cymru, and known since May 2020 as the Senedd), which initially exercised both parliamentary and executive functions. By virtue of the Government of Wales Act 2006 (GWA 2006), the Senedd retains the parliamentary function and the executive function was transferred to the Welsh Assembly Government (subsequently renamed the Welsh Government). The Senedd’s powers were further enhanced by the Wales Act 2017 and it now enjoys the power to pass legislation (Acts of Senedd Cymru) as it applies in relation to Wales across 20 devolved areas including agriculture, economic development, education, environment, food, health, housing,

A ‘Golden Brick’ scheme or arrangement is a method of structuring the acquisition of land (with no buildings on it) for residential property development that mitigates VAT exposure for both the vendor and the purchaser. A ‘Golden Brick’ agreement will set out the terms of such an arrangement and be entered into between the vendor and the purchaser. The golden brick scheme is particularly used by registered social landlords (‘RSLs’) who purchase development sites for the construction of affordable housing. It becomes relevant where the property being purchased is subject to a VAT election or ‘option to tax’ made by the vendor. The vendor may choose to elect to charge VAT on the sale of land in order to reclaim VAT that it paid on the purchase of the land and costs associated with it (eg planning). However, if the purchaser is an RSL who purchases the land to construct rental properties, it will not be able to recover any VAT that it pays on the purchase price. The rental of social housing is

A 'pathfinder' or 'path-range' prospectus is a draft prospectus that is issued before the final prospectus (approved by the Financial Conduct Authority (FCA)), is published. It is typical for the pathfinder to have an indicative price range within which the final offer price will usually be determined. In the US, the pathfinder is usually referred to as a 'red-herring' or 'red' prospectus. A pathfinder is used in order to assess the level of demand in the market for the securities on offer. This is achieved by distributing the pathfinder to prospective investors during roadshows and the book-building exercise. While the pathfinder does not require the FCA's approval, it is usual practice for the pathfinder to be close to final version of the prospectus and for it to have therefore gone a substantial way through the FCA's review process. Content The

Written in partnership with Melissa Ratchev (Associate, Hogan Lovells International LLP) and Maegen Morrison (Partner, Hogan Lovells International LLP) (Associate, Hogan Lovells International LLP). A related party transaction Related party transactions are governed by Chapter 11 of the Listing Rules (LRs). LR 11 applies to the related party transactions entered into by issuers whose equity securities are admitted to trading on the premium listing segment of the Main Market. The purpose behind LR 11 is to prevent a related party from taking advantage of its relationship with the listed company or to prevent any perception that it may have done so. Under LR 11.1.5R, a 'related party transaction' is defined as: • any transaction between a listed company and a related party, other than in the ordinary course of business • any arrangement pursuant to which a listed company and a related party each invests in, or provides finance to, another undertaking or asset, other than in the ordinary course of business, or • any