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1 Legal Issues of Derivatives Abstract Derivatives symbolize one of the most successful instruments of international markets in 20. century boosted by ongoing globalization and never-ending technological progress. Though origins of derivatives could had been found in Ancient times, the real "explosion" of derivatives has blown in last two centuries. The essential objective and purpose of the thesis is firstly to analyse the true meaning and definition of the term "derivative" and surrounding legal issues and secondly to provide comprehensive list of basic derivatives according to the historical and financial-economic indicators. My thesis consists of six chapters. First two introductory chapters deal with the general aspects of derivatives, such as definition and legal nature. Derivatives, generally speaking, are legal contracts between market participants allowing contracting parties to transfer risks connected with particular underlying to another party or speculate on market movements in order to gain profits. Derivatives are traded in both, standardized and OTC markets, which embodied them with ultimate flexibility and range. Assessing true legal nature of derivatives stands for one of the main issues concerned by academics and practitioners, in particular whether derivatives fall under the category of...

Santrauka ISDA pagrindinė sutartis – viena svarbiausių šiuolaikinėje finansų rinkoje taikomų finansinių sutarčių. Pirmoji jos redakcija pasirodė 1992 metais, kai išvestinių finansinių priemonių sutarčių reglamentavimas dar tik pradėjo vystytis. Atsižvelgiant į tai, ISDA pagrindinė sutartis ir joje įtvirtintas baigiamosios užskaitos institutas turėjo didžiulę reikšmę pasaulio ekonomikos augimui ir paskatimo daugelį valstybių savo teisės sistemose pripažinti baigiamąją užskaitą. Tačiau Lietuvoje pirmieji šio teisės instituto pripažinimo žingsniai buvo žengti tik po įstojimo į Europos Sąjungą, priėmus Finansinio užtikrinimo susitarimų įstatymą. Šio darbo pirmojoje dalyje nagrinėjama ISDA pagrindinės sutarties sandara ir esminiai bruožai bei jos įtaka pasaulio ir Lietuvos privatinei teisei. Taip pat aptariamas sutarties atsiradimas ir tolesnė jos raida. Antrojoje darbo dalyje analizuojami du svarbiausi ISDA pagrindinės sutarties kredito rizikos išvestinių finansinių priemonių rinkose mažinimo mechanizmai – baigiamoji užskaita ir finansinio užtikrinimo susitarimai - ir juos įtvirtinančių normų santykis su Lietuvos Respublikos imperatyviomis teisės normomis. Be to, aptariama subjektų kompetencija sudaryti ISDA pagrindinę sutartį. / Summary The ISDA Master Agreement Provisions in the Context of Imperative Legal Norms of the Republic of Lithuania ISDA master agreement is one of the most important agreements in modern financial markets. The first edition of this agreement was published in 1992, when the development of documentation of derivatives had begun. Following to this ISDA master agreement and the close-out netting provisions of this agreement had significant impact to the growth of the world’s financial markets and lead to implementation of netting laws in many of the jurisdictions. However, first steps to introduce the close-out netting in Lithuanian law system had been done only after it became the member of European Union, when the Law of Collateral Agreements was adopted. The first part of the thesis deals with the issues, related to structure and evolution of ISDA master agreement and the significance of this document to the Lithuanian and world’s financial markets. The second part of the thesis deals with the analysis of two most important mechanisms of the credit risk reduction: close-out netting and collateral agreements. Moreover, it comments the legal capacity of legal subjects to enter ISDA master agreement.

The solvent 7 molal (m) methyldiethanolamine (MDEA)/2 m piperazine (PZ) presents an attractive option to industry standard solvents including monoethanolamine (MEA) for carbon dioxide (CO₂) capture in coal-fired power plant flue gas scrubbing applications. The solvent was tested under thermal and oxidizing conditions, including temperature cycling in the Integrated Solvent Degradation Apparatus (ISDA), to measure rates of degradation for comparison to other solvents. Unloaded 7 m MDEA/2 m PZ was generally thermally stable up to 150 °C, exhibiting very low loss rates. However, at a loading of 0.25 mol CO2/mol alkalinity, loss rates of 0.17 ± 0.21 and 0.24 ± 0.06 mM/hr, respectively, for MDEA and PZ were measured. No amine loss was observed in the unloaded blend. Thermal degradation was modeled as first-order in [MDEAH⁺], and a universal Ea for amine loss was estimated at 104 kJ/mol. An oxidative degradation model for 7 m MDEA was developed based on the ISDA data. From the model, the rate of amine loss in 7 m MDEA/2 m PZ was estimated at 1.3 X 10⁵ kg/yr, based on a 500 MW power plant and 90% CO₂ capture. In terms of amine loss, the solvent can be ranked with other cycled solvents from greatest to least as follows: 7 m MDEA>7 m MDEA/2 m PZ>8 m PZ. Thermal degradation pathways and mechanisms for 7 m MDEA/2 m PZ include SN2 substitution reactions to form diethanolamine (DEA), methylaminoethanol (MAE), 1-methylpiperazine (1-MPZ), and 1,4-dimethylpiperazine (1,4-DMPZ). The formation of the amino acids bicine and hydroxyethyl sarcosine (HES) has been directly tied to the formation of DEA and MAE, respectively, through oxidation. As a result of the construction and operation of the ISDA for cycling of solvents from an oxidative reactor to a thermal reactor, several practical findings related to solvent degradation were made. The ISDA results demonstrated that increasing dissolved oxygen in solvents leaving the absorber will increase the rate of oxidation. A simple N2 gas stripping method was tested and resulted in a reduction to 1/5th the high temperature oxidation rate associated with dissolved oxygen present in the higher temperature regions of an absorber/stripper system. The ISDA experiments also demonstrated the need to minimize entrained gas bubbles in absorber/stripper systems to control oxidation. When the ISDA was modified to intercept entrained gas bubbles, the oxidation rate was reduced 2 to 3X. / text

Submitted by Franciele Moreira (francielemoreyra@gmail.com) on 2018-04-24T14:09:16Z No. of bitstreams: 2 Dissertação - Adriano Silva de Faria - 2018.pdf: 11007100 bytes, checksum: 00923ba0305a677bca78e6eaf67c518f (MD5) license_rdf: 0 bytes, checksum: d41d8cd98f00b204e9800998ecf8427e (MD5) / Approved for entry into archive by Luciana Ferreira (lucgeral@gmail.com) on 2018-04-25T12:12:28Z (GMT) No. of bitstreams: 2 Dissertação - Adriano Silva de Faria - 2018.pdf: 11007100 bytes, checksum: 00923ba0305a677bca78e6eaf67c518f (MD5) license_rdf: 0 bytes, checksum: d41d8cd98f00b204e9800998ecf8427e (MD5) / Made available in DSpace on 2018-04-25T12:12:28Z (GMT). No. of bitstreams: 2 Dissertação - Adriano Silva de Faria - 2018.pdf: 11007100 bytes, checksum: 00923ba0305a677bca78e6eaf67c518f (MD5) license_rdf: 0 bytes, checksum: d41d8cd98f00b204e9800998ecf8427e (MD5) Previous issue date: 2018-03-13 / The Cerrado biome has about 30% or 12,070 of the flora species cataloged in Brazil. Accelerated occupation and loss of biodiversity have made the Cerrado one of the 34 hotspots in the world. With a high index of endemism, about 30% (645) of the species that make up the list with some level of threat of extinction in Brazil are located in the Cerrado. The biome still has a remarkable climatic seasonality, with dry and rainy season. The replacement of Cerrado vegetation for anthropic uses intensified in the 1970s, basically for agricultural uses. Studies on climate change point to deforestation as one of the causes of greenhouse gas (GHG) emissions, motivating the government to create programs to monitor the coverage and use of land and removal of natural vegetation. Mappings indicate a reduction of vegetation of the Cerrado in 6% in the 11-year interval (PROBIO in 2002 with 60.5% and Cerrado TerraClass in 2013 with 54.5%). In this way, it makes necessary the annual monitoring, financing the actions of conservation for the biome. In order to understand the detection in the Cerrado conversion and to obtain information in a short time, it was decided to use the Integrated System of Deforestation Alerts (ISDA), since it is the only annual monitoring of the biome and has a low cost in relation to the others existing. SIAD was developed in Lapig and has provided conversion rates since 2003. In this way, the objective was to evaluate the potential and the limitations of detection of deforestation in the Cerrado using satellite images of moderate resolution and analysis of time series with reference to the SIAD. The efficiency of the reference map (i.e. PROBIO and TerraClass) was evaluated in relation to the amount of false deforestation generated. We attempted to understand the variation in the number of alerts generated as a function of rainfall seasonality from MODIS collections 5 and 6 (product MOD13Q1) and to analyze the seasonal behavior of deforestation alerts from 2015-2016 using the BFAST algorithm. Thus, the SIAD generated 101,902 deforestation alerts for 2015-2016 using the Cerrado TerraClass mapping and MODIS collection 6, of which 3% (3,185) were classified as deforestation by the visual inspection method. It was verified that the Cerrado TerraClass reference map generates less false deforestation than the PROBIO, and that, the collection 6 presents greater sensitivity of change in the vegetation in relation to the collection 5, contributing to the increase of false deforestation. The seasonality of precipitation is directly related to the number of alerts generated. However, the BFAST algorithm was effective in filtering the false positives, not presenting breaks in 16% of the alerts generated for 2015-2016, with 99% agreement with the visual inspection. / O bioma Cerrado possui cerca de 30% ou 12.070 das espécies de flora catalogadas no Brasil. A ocupação acelerada e a perda da biodiversidade fizeram com que o Cerrado se tornasse um dos 34 hotspots do mundo. Com alto índice de endemismo, cerca de 30% (645) das espécies que compõem a lista com algum nível de ameaça de extinção no Brasil se localizam no Cerrado. O bioma ainda conta com uma sazonalidade climática marcante, com período seco e chuvoso. A substituição da vegetação do Cerrado para usos antrópicos se intensificou a partir da década de 1970, basicamente para usos agropecuários. Estudos sobre mudanças climáticas apontam o desmatamento como uma das causas de emissões de gases de efeito estufa (GEE), motivando o governo a criar programas de monitoramento da cobertura e uso da terra e remoção da vegetação natural. Mapeamentos apontam redução da vegetação do Cerrado em 6% no intervalo de 11 anos (PROBIO em 2002 com 60,5% e TerraClass Cerrado em 2013 com 54,5%). Desta maneira, faz se necessário o monitoramento anual, subsidiando as ações de conservação para o bioma. Para compreender a detecção na conversão do Cerrado e obter informações em curto espaço de tempo, optou-se em utilizar o Sistema Integrado de Alertas de Desmatamento (SIAD), por ser o único monitoramento anual do bioma e possuir baixo custo em relação aos demais existentes. O SIAD foi desenvolvido no Lapig e disponibiliza taxas de conversão desde 2003. Desta forma, buscou-se avaliar o potencial e as limitações de detecção de desmatamentos no Cerrado utilizando imagens de satélite de resolução moderada e análises de séries temporais tendo por referência o SIAD. Avaliou-se a eficiência do mapa de referência (i.e. PROBIO e TerraClass) em relação a quantidade de falsos desmatamentos gerados. Buscou-se entender a variação na quantidade de alertas gerados em função da sazonalidade da precipitação a partir das coleções 5 e 6 do MODIS (produto MOD13Q1) e analisar o comportamento sazonal dos alertas de desmatamentos de 2015-2016 utilizando o algoritmo BFAST. Assim, o SIAD gerou 101.902 alertas de desmatamentos para 2015-2016 utilizando o mapeamento TerraClass Cerrado e coleção 6 MODIS, dos quais 3% (3.185) foram classificados como desmatamento pelo método de inspeção visual. Verificou-se que o mapa de referência TerraClass Cerrado gera menos falsos desmatamentos que o PROBIO, e que, a coleção 6 apresenta maior sensibilidade de mudança na vegetação em relação a coleção 5, contribuindo para o aumento de falsos desmatamentos. A sazonalidade da precipitação possui relação direta na quantidade de alertas gerados. Já o algoritmo BFAST se mostrou eficaz na filtragem dos falsos positivos, não apresentando quebras em 16% dos alertas gerados para 2015- 2016, com 99% de concordância com a inspeção visual.

The thesis is focused on the process of trading in credit derivatives on the global financial markets. The first part deals with the history and the development of credit derivatives from the very beginning to the present and all factors that influenced and affected them during that time. Various derivative instruments are explained, in terms of their purpose, suitability for use and the risks arising from them. Mainy focus of the thesis is put on the selected stock markets (CME Group Inc., Eurex AG, NYSE Liff Holdings LLC). This section begins with their history, then it describes their structure and purpose. It explains stock market membership conditions and settlement of exchange contracts principles. The final part clarifies the role of credit derivatives in the financial crisis and the reasons that led to it. In the final part of the thesis organizations that regulate credit derivatives are described, in addition to regulation methods and aids, specifically in terms of new regulatory measures under Basel III and the organization of ISDA, which are also included. At the very end the possibilities of securitization and credit risk diversification are explained as well as methods of credit instruments valuation, which are demonstrated on an example of Credit Default Swap.

Suite à la crise financière globale de 2008, ainsi qu’aux différents facteurs qui y ont mené, il est étonnant qu’une alternative éthique et juste pour une finance lucrative et stable n’existe toujours pas (ou du moins, demeure oubliée). Ayant décidé de contribuer au domaine pluri-centenaire du Droit Commercial de la Chari’a, nous avons été surpris par la découverte d’une problématique à l’origine de cette thèse. En France, nous avons suivi des débats doctrinaux intéressants dont les conclusions se rapprochent de la perception générale Occidentale quand à la nature de la finance Islamique, que ce soit au niveau de la finance basée sur le Droit de la Chari’a ou encore les exigences de sa pleine introduction dans le système juridique français de l’époque. Cet intérêt initial dans la finance islamique a ensuite mené à un intérêt dans la question des avantages d’éthique et de justice du Droit Commercial de la Chari’a dans son ensemble, qui est au coeur de cette thèse. Dans le monde moderne du commerce et de la finance d’aujourd’hui, les transactions sont marquées par une prise de risque excessive et un esprit de spéculation qui s’apparente aux jeux de hasard, et menant à des pertes colossales. Pire encore, ces pertes sont ensuite transférées à la collectivité. Par conséquent, y at-il des préceptes, des principes ou des règles éthiques et juridiques qui peuvent fournir une certaine forme de sécurité et de protection dans les marchés financiers d'aujourd'hui? Est-ce réalisable? Cette thèse soutient que la richesse de la jurisprudence islamique ainsi que ses règles dont les avantages n’ont pas encore été pleinement saisis et régénérés en réponse aux nouveaux défis d’aujourd'hui, peuvent encore fournir continuellement des solutions, et réformer des produits financiers de façon à refléter des principes de justice et d'équité. Dans ce processus, un éclairage nouveau sera apporté à certains sujets déjà connus dans le cadre de la contribution prévue de cette thèse, mais ne sera pas le principal objectif de la thèse. / Following the 2008 global financial meltdown and the various reasons that lead to it, it seemed inconceivable that no ethical and justice-driven alternative for highly lucrative and stable financing existed, or at the very least forgotten about. Deciding to contribute to the already centuries old and continuously developing domain of Shari’a Commercial law, we were first caught by surprise when we discovered one particular problem that sparked the start of this thesis. In France, we encountered interesting debates and doctrinal findings resembling a general and common western perception of the legal nature of Islamic Finance, being Shari’a Commercial law based financing, and the requirements for its full introduction into the French legal system at the time. This initial interest in Islamic Finance then evoked an interest in the ethical and justice driven gems of Shari’a Commercial law as a whole, and as the subject of this thesis. In today’s modern and global commercial and financial world, transactions are shrouded by excessive risk-taking and speculation akin to gambling, rendering at times colossal damages. To make matters worse, those damages are dislodged onto the public. Therefore, are there any ethical and legal precepts, principles and rules that may provide some form of a safety and social net in today’s financial markets? Is this achievable? This thesis argues that the richness of Islamic jurisprudence and its rules that have not had their benefits fully reaped and regenerated in response to new challenges till today, may still continuously provide solutions, as well as provide reforms to financial products, which exemplify justice and fairness. Within the process, new light will be shed on certain already known topics as part of the intended contribution of this thesis, but will not be the main objective of the thesis.

Depuis la succession des récentes crises financières, les « dérivés de crédit » connaissent une notoriété médiatique très intense qui dépasse la seule sphère des spécialistes. Créés au début des années 1990, ils sont des instruments financiers de transfert du risque de crédit. Ils autorisent tant la protection que la spéculation. Ils sont juridiquement documentés par des conventions-Cadres proposées par l’International Swaps and Derivatives Association (ISDA), et dans une très petite mesure, par la Fédération Bancaire Française en France. Ils regroupent cinq grandes catégories de contrat : « credit default swap » ou « contrat d’échange sur le risque de crédit », « credit linked notes » ou « dérivé de crédit titrisé », « credit spread option » ou « option sur écart de taux », « credit spread forward » ou « dérivé sur écart de taux » et « total rate of return swap » ou « dérivé de transfert total de rendement ». La nature et la diversité des « dérivés de crédit » posent depuis toujours de sérieuses difficultés de qualification dans de nombreux pays. En droit français, si une qualification commune semble émerger, celle d’instrument financier, elle est hélas insuffisante à apporter un régime juridique complet. Un travail complémentaire de qualification est indispensable pour chaque contrat membre des « dérivés de crédit ». / Nowadays, since financial crisis, « credit derivatives » are famous. Born in 1990’s, they transfer the credit risk. They are speculation’s instrument or margin’s instrument. International Swaps and Derivatives Association (ISDA), and the Fédération Bancaire Française (in France), point to pattern juridical agreement. Credit derivatives include five big sort of agreement : « credit default swap » (« contrat d’échange sur le risque de crédit »), « credit linked notes » (« dérivé de crédit titrisé »), « credit spread option » (« option sur écart de taux »), « credit spread forward » (« dérivé sur écart de taux ») and « total rate of return swap » (« dérivé de transfert total de rendement »). Their variety and essence ask difficult question of juridical appreciation in many countries. In French law, credit derivatives are « instrument financier ». But this juridical appreciation is incomplete. Every sort of agreement must being individually studies.