This book has its origins in a series of workshops conducted by the author in 2008. The purpose of this book is two-fold: (i) advance discussion on the subject of derivatives in general and counterparty risk of derivatives providers in particular; and (ii) provide readers with Best Practices for handling derivatives counterparty risk.

Gordon F. Peery has lectured in London, Hong Kong, Toronto, Brunei, Kuala Lumpur, and the United States on the 2008 market crises and derivatives reform. Since representing a leading investment bank in televised Enron hearings in Congress, Mr. Peery developed a global legal practice exclusively devoted to derivatives and futures clients. In his seventeenth year in large firm legal practice, Mr. Peery is a partner who counsels governments, sovereign wealth funds, international investment advisors, states, counties, global investment management clients, funds, managed accounts, real estate firms, energy companies, and individuals as a leader within the Derivatives and Structured Products Practice of K&L Gates LLP, one of the world's largest law firms. Mr. Peery has actively contributed to International Swaps and Derivatives Association, Inc. (ISDA) and the Futures Industry Association (FIA) working groups and has taught for ISDA. He has helped shape the next generation of derivatives and futures documentation and has authored or coauthored over thirty articles on derivatives and futures. He holds degrees from Vanderbilt Law School (JD, recipient of the endowed Bennett Douglas Bell Memorial Award) and the University of Southern California, where he graduated with a double-major, magna cum laude, as a member of Phi Beta Kappa.

Preface	p. xiii
Acknowledgments	p. xix
Introduction	p. 1
The Crises That Led to Derivatives Reform	p. 15
Seven Causes of the 2008 Market Crises	p. 17
Ignoring the Warning Signs	p. 18
More than Seven Causes of the, 2008 Market Crises	p. 20
An Incomplete Response to Problems Exposed in the Enron Bankruptcy	p. 26
Enron Finance Used by Banks and the Lack of Regulation	p. 29
The Absence of Effective Regulation	p. 30
The Shadow Banking System	p. 34
Development of an Unregulated Global Derivatives Market	p. 39
The Rise of Credit Derivatives and the Credit Default Swap	p. 44
Private-Label Residential Mortgage-Backed Securitization	p. 45
U.S. Policy Fostering Home Ownership and GSE Mismanagement	p. 47
Derivatives and Structured Products Accounting Practices	p. 49
Notes	p. 52
The Crises and Reform Timeline	p. 55
March 17, 2008: Bear Stearns Is Sold	p. 57
March 27, 2008: Barack Obama Introduces Reform Principles	p. 58
September 15, 2008: A Bankrupt Lehman Brothers	p. 59
November 2008 to January 2009: American Leadership Ascends	p. 60
March 26, 2009: Geithner Provides Testimony to Congress on Reform	p. 60
May 13, 2009: Geithner Writes a Letter to Harry Reid	p. 61
June 2, 2009: An Early Voice Speaks Out against the Clearing Mandate	p. 61
June 22, 2009: American Corporations Lobby against Central Clearing Mandates for OTC Derivatives	p. 62
July 22, 2009: Introduction of Legislation Favoring Exemptions to the Clearing Mandate	p. 62
July 30, 2009: Introduction of Broad Outlines of the New Law	p. 63
September 8, 2009: The Industry Demonstrates Commitment to Centralized Clearing	p. 63
October 2, 2009: House Releases Draft of OTC Derivative Legislation	p. 63
November 11, 2009: Senate Releases Draft of OTC Derivative Legislation	p. 64
December 11, 2009: House Passes the Wall Street Reform and Consumer Protection Act of 2009	p. 64
January 1, 2010: The New York Fed Publishes The Policy Perspectives on OTC Derivatives Market Structure	p. 65
April 7, 2010: Financial Crisis Inquiry Commission Begins Hearings	p. 65
April 16, 2010: Senator Lincoln Introduces the Wall Street Transparency and Accountability Act of 2010	p. 66
April 22, 2010: President Obama Returns to Cooper Union to Speak on Reform	p. 66
April 26 to 27, 2010: Senate Votes to Delay Debate on Derivatives Reform	p. 67
April 27, 2010: The Goldman Hearing	p. 67
April 28, 2010: Senate Votes Again to Proceed with Financial Services Reform	p. 70
May 20, 2010: Senate Passes Its Version of the Legislation	p. 70
June 30, 2010 and July 15, 2010: Congress Approves Legislation and Seeks the President's Approval	p. 71
July 21, 2010: President Obama Signs Dodd-Frank into Law	p. 71
U.S. Rule Making in 2010 and 2011	p. 73
U.S. Reform Blazes the Trail for Global Derivatives Reform	p. 79
Notes	p. 80
Derivatives Reform	p. 83
Introduction to Part Two	p. 83
Introduction to Futures, Margin, and Central Clearing	p. 85
Three Crises and the Need for the Futures Model	p. 87
A Brief History of Futures Contracts and Markets	p. 92
The Commodity Futures Modernization Act of 2000	p. 98
Introduction to the Futures Model and Basic Futures Concepts	p. 100
Regulation of Futures	p. 112
A Futures Contract in Action	p. 114
Default by a Clearing Member in the Futures Model	p. 117
Global Reform and the Futures Model	p. 120
Notes	p. 126
U.S. Derivatives Law in Title VII of Dodd-Frank	p. 131
Organization of Dodd-Frank	p. 131
Introduction to Titles VII and VIII	p. 134
The Approach to Understanding New Derivatives Law in the United States	p. 136
Products	p. 137
People	p. 147
Taxpayers	p. 153
Whistleblowers	p. 169
Platforms	p. 170
Notes	p. 175
Title VIII of Dodd-Frank	p. 177
Opposition to Title VIII	p. 178
Before Title VIII	p. 180
What Exactly Does Title VIII Set into Motion and When?	p. 182
What Is a Systemically Important Activity?	p. 183
Practical Results of the New Law	p. 184
Notes	p. 186
A Primer on Legal Documentation	p. 187
Background	p. 190
"Let's Use an ISDA"	p. 191
History of the ISDA	p. 194
Basic OTC Architecture	p. 195
The ISDA Documentation in Practice, and Problems in 2008	p. 202
Glossary	p. 208
Notes	p. 210
The Life Cycle of a Cleared Derivatives Trade	p. 211
Step One: Legal Documentation	p. 211
Step Two: Trade Execution via an SEF, SB-SEF, or DCM	p. 215
Step Three: Alleging and Affirming a Trade; Reporting in Real Time	p. 221
Step Four: The FCM Take-Up	p. 222
Step Five: Trade Is Centrally Cleared	p. 223
Step Six: The Trade Is Reported for the Second Time	p. 225
Notes	p. 226
Trading Before and After Reform	p. 227
The History of Derivatives and Futures	p. 229
The Earliest Derivative	p. 230
Trees, Forests, and Wildfires	p. 231
Did They Exist in Antiquity?	p. 233
OTC and Exchange Derivatives	p. 233
Back to Biblical Times	p. 234
The Dark Ages and Medieval Europe	p. 239
The Muslim Empire	p. 240
Development and Early Use of the Bill of Trade or Exchange	p. 241
After the Protestant Reformation	p. 244
An Early Sighting of the Term Commodity Pools	p. 249
Ten Wise Men	p. 250
The Modern Era Begins in the States in 1848	p. 258
Early-Twentieth-Century America	p. 259
1907 Bankers Panic	p. 260
S&Ls and Mortgage Finance Functions Well Before Abuses	p. 268
The Creation of Fannie and Freddie	p. 268
Disco, Dealers, Swaps, and Redlining in the 1970s	p. 269
U.S. Regulators Formally Recognize Swaps	p. 273
The Birth of the OTC Market	p. 274
The Evolution of Options Markets	p. 275
The Futures Trading and Practices Act and the 1993 Swaps Exemption	p. 276
ISDA	p. 277
The 1987 Crash and 1990s Crises	p. 279
The Commodity Futures Modernization Act of 2000	p. 286
Enron Loophole	p. 287
The First Decade of the Twenty-First Century	p. 288
Notes	p. 289
Market Structure Before and After 2010	p. 299
Ancient Commodity Markets	p. 299
Earliest Modern Exchanges	p. 300
The Great Depression and Bucket Shops	p. 301
Open Outcry and Pits Give Way to the Machines	p. 302
Reform of U.S. Market Structure	p. 305
Derivative Clearing Organizations (DCOs)	p. 307
Swap Data Repository	p. 308
Market Participants in the OTC Derivatives Trade	p. 309
Notes	p. 311
Continuing Education	p. 315
Survey of Derivatives	p. 317
Overview of the Strategies and Trade Structure	p. 319
Early Derivatives and the Beginnings of the OTC Market	p. 320
Forwards versus Options	p. 320
Option Basics	p. 322
Options Pricing	p. 324
Basic Option Strategies	p. 326
Exchange-Traded Options	p. 328
Swaps Follow Options in the Evolution of Derivatives	p. 329
Credit Derivatives	p. 330
Credit-Linked Notes and Other Securities	p. 336
Total Return Swaps	p. 336
Interest Rate Swaps	p. 338
Equity Swaps	p. 340
Currency Derivatives	p. 341
Property Derivatives	p. 342
Commodity Derivatives	p. 344
Energy Swaps	p. 345
Structured Products, Securitization, CDOs, and CDOs Squared	p. 346
Exchange-Traded Derivatives: Futures and Other Listed Products	p. 348
Additional Resources	p. 349
Online Resources	p. 349
Glossaries	p. 350
Notes	p. 350
About the Author	p. 351
Index	p. 353
Table of Contents provided by Ingram. All Rights Reserved.

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