Party Autonomy in International Property Law - Peace Palace Library

D. Assignment; Financial Instruments; Insolvency Law
(iii) Rock Solid Bank could post securities collateral with Alpha Bank
through a title transfer arrangement; or
(iv) Rock Solid Bank could charge or pledge securities it holds with Alpha
Bank or in an investment account with a different intermediary
for the benefit of Alpha Bank.
Once EU Directive 2009 / 44 / ​EC, amending the Collateral Directive, 22 has
been implemented, collateral may also take the form of credit claims, i.e.
‘pecuniary claims arising out of an agreement whereby a credit institution
(…) grants credit in the form of a loan’. This type of collateral will be
ignored for the purpose of this chapter because cash and securities would
seem to be more appropriate for collateralizing credit default swaps owing
to their liquidity.
In the following paragraphs, I will be considering the level of party autonomy
available for each of the four types of arrangements listed above.
11.3.2. Cash collateral transfer arrangements
(posting cash collateral)
What happens from a legal perspective if Rock Solid Bank posts cash collateral
with Alpha Bank? First, the parties will probably enter into some
sort of contractual arrangement in addition to the credit default swap,
specifying when the cash must be posted, whether Alpha Bank is under
an obligation to keep the cash in a separate account, the circumstances
under which Alpha Bank will be allowed to appropriate the cash, when
it should be returned (if it is to be returned), etc. The banks, being professional
parties active in the financial markets, should be able to agree
almost everything in this respect without the provisions of mandatory
law standing in the way of their party autonomy. They can (and are likely
to) use one of the standard form contracts provided by the International
Swaps and Derivatives Association (ISDA). 23 In our example, the parties
22
The Collateral Directive.
23
ISDA is an important organization in the field of derivatives transactions,
amongst other things providing standard documentation and arranging for
legal advice as to the enforceability of this documentation in different jurisdictions.
For further information see www.isda.org. A general description of
the ISDA documentation can be found in Hudson 2009, chapters 44 and 45,
234
Reinout M. Wibier
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