Capital markets and structured investments

No.

Unless an exemption or exclusion applies, a person issuing derivatives as part of its financial services business is deemed to be dealing in financial products, which requires an AFSL under the Corporations Act 2001 (Cth) and the Corporation Regulations 2001 (Cth). If a person issues derivatives without an AFSL, the counterparty would be entitled to rescind any agreements in relation to that product and the relevant agreements will be unenforceable. There are specific financial requirements for a person authorized to issue derivatives, which differ from requirements in relation to other financial products, which recognize the exposure of the licensee to counterparties arising from entering into derivatives.

For these purposes, a 'derivative' is broadly defined as an arrangement that has a future liability element and a derived value element, and is sufficiently wide to cover all commonly-regarded types of derivative contracts, including futures agreements and forwards, options, swaps and contracts for difference. Under the relevant legislation, certain arrangements are specifically excluded as derivatives including:

• arrangements for mandatory physical delivery of tangible property;
• a contract for the future provision of services; and
• anything that falls within one of the other categories of financial product (such as a security).

AFSL licensees have ongoing obligations under the Corporations Act 2001 (Cth) in terms of their conduct, including to:

• notify the ASIC of breaches or likely breaches of certain significant licensee obligations;
• quote their AFSL number in documents;
• comply with stipulated procedures when dealing with clients’ money; and
• keep financial records.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Belgium (such as investment firms) will in principle have to be authorized.

The distribution of certain financial derivatives among Belgian retail clients is restricted as from 18 August 2016. Certain derivatives such as binary options or contracts for difference (CFDs) with leverage, may not be distributed, and certain distribution practices are also prohibited. The Regulation drawn up by the Financial Services and Markets Authority (Autorité des services et marchés financier/Autoriteit voor Financiële Diensten en Markten) (FSMA) on this matter was approved by Royal Decree of 21 July 2016 that approves the FSMA's Regulation on the distribution of over-the-counter (OTC) derivatives (Regulation). The Regulation applies to derivative contracts distributed to consumers in Belgium, usually from abroad, via electronic trading platforms.

The Regulation consists of two elements which apply cumulatively:

• The first element is a ban on distribution of a few specific types of derivative contracts to consumers via electronic trading platforms. These are binary options, derivative contracts with a maturity of less than 1 hour, derivative contracts with leverage, such as CFDs and rolling spot forex contracts. The Regulation applies to unlisted or OTC derivatives. It does not apply to derivatives that are admitted to trading on a regulated market or on a multilateral trading facility. The Regulation supplements the distribution ban that was already in force for certain products, such as life settlements (traded life policies) and financial products with a virtual currency as their underlying.
• The second element is a ban on a number of aggressive or inappropriate distribution techniques (cold calling via external call centers, inappropriate forms of remuneration, fictitious gifts or bonuses etc) used when distributing OTC derivatives to consumers.

In addition, the European Market Infrastructure Regulation (EMIR) imposes obligations on EU derivatives market participants. EMIR applies to financial counterparties (banks, investment firms, insurance companies, registered funds (UCITS), pension funds and private funds) and non financial counterparties (any other undertaking established in the EU) that enter into derivatives, whether they do so for trading purposes, to hedge themselves against interest rate or foreign exchange risk or to gain exposure to certain assets as part of their investment strategy.

Certain EMIR obligations (clearing and risk mitigation) may also affect non EU entities in two sets of circumstances: EMIR can apply directly to those companies or indirectly impact them when they enter into derivatives with EU participants.

EMIR does not impose any new authorization or registration requirements for parties to derivatives contracts. EU dealers in OTC derivatives are already required to be authorized as investment firms under MiFID, unless an exemption applies.

EMIR imposes three main obligations on market participants:

• Clearing – Certain OTC derivatives entered into between certain market participants will have to be cleared via a central counterparty (CCP).
• Reporting – All derivatives (OTC and exchange traded, including derivatives entered into since, or that were outstanding on, 16 August 2012) will have to be reported to a trade repository.
• Risk mitigation techniques – OTC derivatives entered into between certain market participants and which are not cleared via a CCP are subject to risk mitigation obligations.

EU non financial counterparties that have ‘systemically important’ positions in ‘non hedging’ derivatives (whether at entity or group level) on any given day also have a notification obligation to their national competent authority and the European Securities and Markets Authority (ESMA).

Derivatives may be traded over-the-counter or on an organized exchange.

Multiple banks, commercial banks, investment banks, foreign exchange banks, broker dealers and securities dealerships are allowed to enter into swap, option, and future transactions in the Brazilian over-the-counter market on their own behalf and on behalf of their clients. Other financial institutions are only allowed to enter into this type of transaction on their own behalf. Those transactions have to be registered with an authorized clearing system in Brazil.

The Central Bank regulates the parameters for the calculation of the underlying indexes and prices for those transactions.

Brazilian companies may only enter into derivatives transactions in the international market for hedging purposes in connection with commercial or financial transactions which are subject to fluctuations in the international market of interest rates, foreign exchange or commodities prices. Those transactions have to be registered with a clearing system in Brazil.

The regulation of derivatives in Canada, like securities, is governed by individual provincial regulators. However, provincial regulators have generally enacted uniform regulations in respect of derivatives, which are substantially similar to those in the US and in the EU, all as part of its G20 commitments following the global financial crisis in 2008.

Dealer registration requirements exist to the extent a party is engaged in the ‘business of trading derivatives’. There are a number of indicia to indicate if and when a party is considered a dealer and whether or not they are subject to registration requirements.

Over-the-counter derivatives transactions in some jurisdictions in Canada are treated as trading in securities and are thus subject to securities laws. To be exempt therefrom (pursuant to blanket orders in individual jurisdictions), parties to over-the-counter derivatives transactions must represent that they are of a type of sophisticated counterparty that ensures they are aware of and have adequately assessed the risks associated with these types of transactions. There are a number of criteria included in such blanket orders for purposes of determining a party’s ability to trade derivatives relating to the type of entity and net worth of any such individual or entity.

Non-regulated companies (limited liability companies or corporations) may freely enter into derivative transactions, including for speculative purposes, solely with any limitations under their by-laws.

Certain special entities (banks, pension fund administrators, mutual funds administrators, brokers etc) can only enter into certain derivatives transactions, which are determined by the relevant regulator. For example, the so-called Securities Agents (Agente de Valores) can only act as securities intermediaries regarding forward agreements over foreign currencies and indexation units and swaps agreements over interest rates, according to the rulings of the CMF.

Moreover, Chapter IX of the Compendium of Foreign Exchange Regulations enacted by the Chilean Central Bank regulates derivative transactions that involve foreign currency flows from Chile to abroad or vice versa, which consist of futures, forwards, swaps or options agreements, credit derivatives or combinations of the same. The main obligations are:

• reporting certain information to the Central Bank of Chile; and
• that both the remittance of foreign currency abroad as well as its return to Chile must be performed through the Formal Foreign Exchange Market.

The general rule is that set-off rights in Chile do not apply in case of bankruptcy, unless the obligations arise from a derivatives agreement. Please note that the Chilean Central Bank establishes certain requisites and conditions that the derivatives agreements must contain in order that the set-off may apply.

The derivatives contracts must be executed with entities under the supervision of the Superintendency of Finance (including commercial banks or broker institutions) duly authorized by such Superintendency to enter into derivatives operations. Also, the derivatives operations made through the Colombian Stock Exchange (CSE), shall comply with the all the rules set forth in the General Rules of the Derivatives Market of the CSE (Reglamento General del Mercado de Derivados).

Any person entering into a derivative contract in the Czech Republic (such as a financial agent) has to be authorized under the Act on Investment Companies and Investment Funds.

Both financial intermediation and provision of investment services include activities such as:

• forwards;
• futures;
• swaps; or
• options.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Under the Act on Investment Services, investment services (including derivatives contracts) may only be offered by authorized entities, unless a specific exemption applies.

There are no general restrictions in relation to the counterparty, however, certain entity specific restrictions may apply (for example the Mutual Funds Act provides restriction on mutual funds when entering into derivatives agreement).

The European Market Infrastructure Regulation (EMIR) applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to trade repositories, for relevant transactions (certain classes of overt-the-counter (OTC) derivatives above certain thresholds) between dealers to be cleared, or when derivatives are not centrally cleared, subject to risk mitigation techniques such as initial margin and variation margin requirements.

Local authorities may only enter into derivatives contracts for hedging purposes and subject to the fulfilment of other specific conditions.

In addition, the French regulators have provided instructions to be complied with in respect of the marketing and the transparency obligation applicable to banks and investment services providers offering complex derivatives products. Unless an exemption applies, investment services on financial contracts (i.e. derivatives contracts) require a license in France (or a passport) to provide the relevant investment service.

Yes.

Derivatives contracts are considered financial instruments under the German Banking Act (Kreditwesengesetz – KWG). Any person dealing in financial instruments can be subject to prior authorization by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)) if such activity qualifies as banking business or a financial service.

The European Market Infrastructure Regulation (EMIR) generally applies to 'over-the-counter' derivative transactions (OTC-transactions) and requires that certain transactions are to be reported to the regulators and for transactions between counterparties to be cleared. Please note: The reporting obligation under Article 9 EMIR applies to all derivative transactions, regardless of whether the transaction is an OTC-transaction or a transaction carried out on an exchange venue.

There are no generally applicable restrictions on derivatives. There is little in Ghanaian finance legislation specifically addressing derivatives contracts. 

Authorization to enter into derivatives transactions is therefore entity-specific to be determined from the entity’s corporate powers, and any mandatory regulatory provisions to which an entity may be subject. 

With regard to the government, the Public Financial Management Act, 2016 (Act 921) provides that the government can engage in derivatives transactions as part of its debt management strategy.

The central bank uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risks, interest rate risks and commodity price risks. 

Statutory corporations may be authorized to enter into derivatives contracts to the extent that their enabling statutes give them such authority. 

Local authorities appear to be restricted to “safe securities,” which is yet to be authoritatively interpreted but could be interpreted to exclude derivatives. 

The central bank says that there are no restrictions as such on banks undertaking derivatives transactions but requires that they report these transactions. 

There is currently no exchange that trades derivatives.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Hungary (such as a dealer) will ordinarily have to be authorized by the National Bank of Hungary if the transaction is one of the specified activities set out in the applicable legislation such as:

• options;
• futures;
• contracts for difference; or
• rights to or interests in investments.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators and for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Regulation (EU) No 648/2012 on OTC (over-the-counter) derivatives, central counterparties and trade repositories, as amended by Regulation 2019/834, (EMIR) establishes certain regulatory requirements for counterparties to OTC derivatives contracts, including:

• a mandatory clearing obligation for certain classes of OTC derivatives;
• a margin posting obligation for OTC derivatives contracts not subject to clearing;
• daily valuation and other risk-mitigation techniques for OTC derivatives contracts not subject to clearing by an authorized or recognized central counterparty; and
• certain reporting and record-keeping requirements.

EMIR applies not only to Financial Counterparties (FCs) as regulated entities, but it also extends the supervisory remit of the Central Bank of Ireland to Non-Financial Counterparties (NFCs), the vast majority of which may not have not had any previous interaction with the Central Bank of Ireland.

An Italian client entering into derivative contracts in Italy might be a private or corporate client or a public client (such as central and local authorities).

Italian private and corporate clients

There are no restrictions on private or corporate clients entering into derivatives contracts.

Nevertheless, when entering into a derivative contract with a corporate client it is advisable to check whether the relevant constituting documents and by-laws of such client:

• Encompass any provision evidencing the authority of the party entering into this type of agreement and the performance of its obligations under such agreement; or
• Encompass any limit in relation to entering into derivatives contracts (in particular, it may be possible that only derivatives contracts with hedging – and not speculative – purposes may be permitted).

Italian public clients

As of June 2008, all Italian public authorities (including local entities, regions, metropolitan cities etc) are prohibited from entering into any type of new derivative contract.

Banks authorized in Italy and/or authorized to carry out in Italy financial services on a cross-border basis

Entering into derivative contracts entail the provision of financial services. Therefore, in order to provide such service, banks and/or financial intermediaries selling a derivative product must be duly authorized to carry out this service (on its own account) in Italy, whether on a cross-border basis or by establishing a branch.

In the event that the bank/financial intermediary is at the same time advisor and counterparty to the client of the derivative contract, Italian law provides a wide range of further information to be disclosed to the client (in order to comply with both appropriateness and suitability rules in favour of the client).

There is no specific legislation on derivatives. Provisions on derivatives can be found in different legal texts.

Certain restrictions do apply.

Businesses and entities proposing derivative contracts and products are to receive prior authorizations (from CREPMF and BCEAO).

The 2014 Uniform Act on commercial companies and Regulation 09/2010 contain some provisions on derivatives.

As per article 744 of that Uniform Act, public limited companies issue transferable securities whose form, class and characteristics shall be defined by the competent body of each state party. 

Residents are authorized to conduct transactions on foreign exchange derivative markets through licensed intermediaries or foreign banks (article 12 of Regulation 09/2010).

Authorized transactions must be backed by trade or financial transactions, subject to compliance with all other regulatory provisions applying to the aforementioned transactions.

A limited number of commercial or financial transactions on derivatives can be conducted by residents.

They are authorized to carry out commodity derivative transactions on commodity futures markets (Article 13: Commodity derivatives).

They may use foreign exchange derivatives to hedge foreign-exchange risks, for the following commercial or financial transactions:

• imports and exports of goods and services by residents;
• foreign loan transactions by residents (draw-downs and payments); and
• direct foreign investments in a resident enterprise under negotiation.

Residents may use derivatives to hedge price risks. Those derivatives must be backed by commodity imports or exports carried out by the residents. They are not authorized to purchase commodities on foreign markets for delivery in commodity derivative transactions (Article 18).

Under the Financial Instruments and Exchange Act, a person entering into a derivatives contract for financial instruments (such as securities and currencies), financial indicators (such as exchange rates) or certain credit derivatives must be registered with the Prime Minister.

In addition, under the Commodity Derivatives Act, derivatives contracts for commodities (such as crude oil and gold) or related commodity indices as well as activities related to the brokerage, intermediation or agency of such commodity derivatives must only be conducted by a duly licensed entity (licensed by the Minister of Agriculture and the Ministry of Economy, Trade and Industry, in principle).

The requirement for sellers to explain the risk of the derivatives at issue to potential customers when soliciting derivative contracts is an important regulation under the Financial Instruments and Exchange Act concerning derivatives.

Under Luxembourg law, there is no specific restriction for entering into derivative contracts such as:

• options;
• futures;
• contracts for difference; or
• rights to or interests in investments.

However, the European Market Infrastructure Regulation, as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

In addition, the provisions of the Luxembourg law dated 15 March 2016 on over-the-counter derivatives, central counterparties and trade repositories, as amended, grant powers to the Luxembourg supervisory authority of the financial sector (Commission de Surveillance du Secteur Financier) and the supervisory authority for insurance companies (Commissariat aux Assurances) in the context of Regulation 648/2012/EU (the European Market Infrastructure Regulation) as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019  and specifies that the Commission de Surveillance du Secteur Financier and the Commissariat aux Assurances are vested with powers of supervision, intervention, inspection and investigation to the extent defined in the European Market Infrastructure Regulation as amended by Regulation (EU) 2019/834 of the European Parliament and of the Council of 20 May 2019 and that they may impose certain sanctions.

A person entering into a derivatives contract by way of business in Mauritius shall be licensed by the Financial Services Commission.

In Mexico, entering into derivatives contracts can be carried out in the following markets.

Organized market

In the organized markets, the derivatives contracts are governed pursuant to standardized terms and conditions (active type, underlying, quantity or size of the agreement, expiration of the agreement, price quotations and liquidation procedure). The main feature of these markets is that the seller and the purchaser never trade directly, but through a central counterparty clearing house specialized in derivatives, in order to eliminate the exchange and insolvency risks.

The only institutional, regulated and organized market existing for the trading of derivatives contracts in Mexico is the Mercado Mexicano de Derivados, S.A. de C.V. (MexDer), an affiliate of the Mexican Stock Exchange (Bolsa Mexicana de Valores). MexDer along with Asigna, its triple-A rated clearinghouse (Asigna), offers liquid, transparent Mexican benchmark products based on interest rates, foreign exchange and stock indexes. Asigna acts as a counterpart for all transactions performed on MexDer.

In principle, to trade directly in MexDer, it is required to be:

• a Clearing Member (Socio Liquidador), which is a trust that is a member of MexDer and owns a share in the equity of Asigna, and whose purpose is to settle and, in some cases, enter into exchange-listed futures and option contracts on behalf of clients; or
• a Trader, which is a bank, brokerage firm or any other entity, that may or may not be a member of MexDer, whose purpose is to act as a broker for one or more clearing members in entering into futures and option contracts, and which may access MexDer’s electronic trading system to enter into such contracts.

Over the counter (OTC)

In the non-organized markets, the parties set out the relevant terms and conditions in accordance with their particular needs; the derivatives contracts are designed by institutions pursuant to the particular needs of their clients. In these markets, there is no clearing house and thus each party takes default risk. In the OTC, there are absolutely no limitations regarding the type of derivatives products to be commercialized, as long as there are assets, trade flows or goods that may allow the documentation of such transactions.

There is no specific restrictions on entering into derivatives contracts. However, general restrictions could significantly affect to enter into derivatives such as the applicable currencies, the bankruptcy regulations or the exchange control rules.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Furthermore, as derivatives qualify as financial instruments, restrictions under the Markets in Financial Instruments Directive (2014/65/EU) as implemented in the Dutch Financial Supervision Act (Wet op het Financieel Toezicht) may apply (eg requirements that are applicable on the provision of investment services).

Furthermore, please note that in the Netherlands it is not usual to enter into a derivative contract with a non-professional party as this would be considered high risk.

Derivatives contracts can only be offered to retail investors by a licensed derivatives issuer. Licenses are issued by the Financial Markets Authority (FMA) under the Financial Markets Conduct Act 2013 (FMCA). The licensing process is comprehensive with significant ongoing monitoring by the FMA.

There are no restrictions for offering derivatives contracts to wholesale investors apart from conduct obligations under the Fair Dealing provisions in Part 2 of the FMCA.

Yes.

Investment services provided on a professional basis must be provided by undertakings authorized to do so by the Ministry of Finance. The authorization shall indicate which investment services and ancillary services the investment firm may provide. An investment firm shall apply to the Norwegian Financial Supervisory Authority for approval before it offers ancillary services beyond those indicated by the authorization. However, the following entities are exempted from the authorization requirement:

• the Central Bank of Norway;
• the National Insurance Scheme Fund;
• public authorities that manage public debt;
• management companies for securities funds;
• insurance companies;
• pension funds;
• depositories of securities funds, pension funds and alternative investment funds;
• undertakings authorized to operate as an options clearing house, clearing house or regulated market; and
• managers of alternative investment funds.

There are no restrictions on entering into derivatives contracts as all of them are executed on an 'over-the-counter' (OTC) basis, which means that contracts are negotiated and agreed between private parties without being regulated.

Without prejudice to the foregoing, the Superintendence of Banking, Insurance and Private Pension Fund Management Companies (SBS) establishes a limited amount of operations related to derivative contracts for financial entities in relation to their equity in order to regulate their total exposure and guarantee a diversified investment portfolio.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of doing business in Poland (such as a dealer) will ordinarily have to be authorized under the Trading in Financial Instruments Act, if the transaction is one of the specified activities, such as:

• options;
• futures;
• contracts for difference; or
• rights to or interests in investments.

One of the key exclusions to the requirements above applies to persons that deal in derivatives for risk management purposes.

The European Market Infrastructure Regulation applies to all derivatives transactions and requires that transactions be reported to regulators and that transactions between dealers be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Derivatives may be traded over the counter or on an organized exchange.

Derivatives traded on an organized market are regulated according to general contractual clauses imposed by the respective fund managers. However, such contractual clauses must be subject to prior communication to the Portuguese Securities Market Commission and the prior approval of Bank of Portugal if the underlying asset of the transaction is an instrument of the money markets or foreign exchange market.

The principal issue here is whether entering into derivative contracts are transactions involving securities under the Uniform Securities Act (PRUSA). The issue of whether a commodities instrument or derivative product is a security or not is not settled in Puerto Rico and depending on the instrument they may be securities and in other cases they may not. If they are securities, the marketing or solicitation of such is regulated under the PRUSA.

Section 101 of the PRUSA states the following in this respect:

‘It shall be unlawful for any person, relative to the offer, sale or purchase of any securities, directly or indirectly:

(1) to employ any device, scheme, or artifice to defraud;

(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading;

(3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person;

(4) to issue, circulate, or publish any material, printed or through electronic means, containing false representation of a material fact, or omitting information concerning a necessary material fact, so that the information which is issued, circulated or published, in the light of the circumstances in which it was issued, circulated or published, leads to an error; or

(5) to issue, circulate, or publish any material, or make any written statement, unless the name of the person who issues, circulates or publishes or makes the aforesaid, and the fact that it is that person who issues, circulates, publishes or makes the statement, is clearly indicated in that same communication.’

Section 101 of the PRUSA is applicable to any person, not just broker-dealers. Therefore it is applicable to parties to a securities transaction whether you are a broker-dealer or not. What makes section 101 of the PRUSA relevant is that the transaction is a securities transaction.

The Office of the Commissioner of Financial Institutions of Puerto Rico (OCFI) has not interpreted whether the described commodities transactions are within the definition of securities under the PRUSA. Therefore, there is a possibility that the OCFI determines that the described commodities transactions are securities within the PRUSA and thus subject to the PRUSA including its licensing or registration requirements.

Notwithstanding the above, an entity would be not be considered a broker-dealer under the PRUSA if the person is deemed not to have a place of business in Puerto Rico and thus exempt from the licensing and registration requirements of the PRUSA. An entity does not have a place of business in Puerto Rico if:

• the person carries out transactions in Puerto Rico exclusively with or through:
  • the issuers of the securities involved in the transaction;
  • other broker-dealers;
  • banks, savings institutions, trust companies, insurance companies, investment companies as such are defined in the Investment Companies Act of Puerto Rico, pension trusts or shares in the benefit of other financial institutions or institutional buyers acting on their own account or as trustees; or
• during any other period of 12 consecutive months does not in any way make more than 15 sale or purchase offers in Puerto Rico to persons other than those specified in (A) above, whether the person making the offer or the persons to whom the offer is made are in Puerto Rico.

In addition to these issues under Puerto Rican law, the commodities market in Puerto Rico is regulated under the US Commodity Exchange Act.

In order to trade, as a business, in their name and on their own account, in derivative financial instruments, such as futures contracts and options, a legal person must be authorized by the Financial Supervisory Authority (FSA) and registered with the FSA's Registry.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

A person entering into a derivative contract by way of business must have a license for banking operations or a license of a professional participant on the securities market (in particular, for brokerage or forex dealer activities) whereas entering into derivatives contract intended for qualified investors is possible only through such persons. Entering into such contracts on an organized exchange is possible where the other party to the agreement is a central counterparty.

The Civil Code of the Russian Federation also regulates deals where there is an obligation on a party to pay monetary amounts depending on the changing price of:

• goods;
• securities;
• exchange rates;
• interest rates;
• inflation rates;
• parameters calculated as an aggregate of the indicators specified above; or
• an occurrence of any other event provided by the law where it is not known whether such event will happen or not.

The claims in respect of such deals are only subject to court protection if at least one of the parties is a legal entity with a license for the banking operations or professional activities on the securities market or, if the deal is made on an authorized exchange, at least one party is a legal entity with a license authorizing it to make deals on an organized exchange. If an individual is a party to such deal, court protection will only be provided if such deal has been made on an organized exchange or in other cases directly stated in the law.

There is no specific legislation on derivatives. Provisions on derivatives can be found in different legal texts.

Certain restrictions do apply.

Businesses and entities proposing derivative contracts and products are to receive prior authorizations (from CREPMF and BCEAO).

The 2014 Uniform Act on commercial companies and Regulation 09/2010 contain some provisions on derivatives.

As per article 744 of that Uniform Act, public limited companies issue transferable securities whose form, class and characteristics shall be defined by the competent body of each state party.

Residents are authorized to conduct transactions on foreign exchange derivative markets through licensed intermediaries or foreign banks (article 12 of Regulation 09/2010).

Authorized transactions must be backed by trade or financial transactions, subject to compliance with all other regulatory provisions applying to the aforementioned transactions.

A limited number of commercial or financial transactions on derivatives can be conducted by residents.

They are authorized to carry out commodity derivative transactions on commodity futures markets (Article 13: Commodity derivatives).

They may use foreign exchange derivatives to hedge foreign-exchange risks, for the following commercial or financial transactions:

• imports and exports of goods and services by residents;
• foreign loan transactions by residents (draw-downs and payments); and
• direct foreign investments in a resident enterprise under negotiation.

Residents may use derivatives to hedge price risks. Those derivatives must be backed by commodity imports or exports carried out by the residents. They are not authorized to purchase commodities on foreign markets for delivery in commodity derivative transactions (Article 18).

There are no restrictions on entering into derivative contracts.

The Securities and Futures (Reporting of Derivative Contracts) Act, however, applies to all derivative transactions and requires transactions to be reported to the Monetary Authority of Singapore.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Slovakia (such as a financial agent) will ordinarily have to be authorized under the Act on Financial Intermediation and Financial Advisory Services.

This applies:

• if the transaction is one of the specified activities within the provision of financial intermediation as set out in Section 2 of the Act on Financial Intermediation and Financial Advisory Services; or

• in case of securities dealer which will ordinarily have to be authorized under the Act on Securities and Investment Services if the transaction is one of the specified activities within the provision of investment services as set out in in Section 6 of the Act on Securities and Investment Services.

Both financial intermediation and provision of investment services include activities such as:

• forwards;
• futures;
• swaps; and
• options.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

‘Derivative Instruments’ are included in the definition of ‘securities’ under the Financial Markets Act (FMA). Any person wishing to carry on the business of buying or selling listed securities must either be an authorized user or effect such transactions through an authorized user. As such anyone wishing to enter into listed derivatives contracts in South Africa must be authorized by a licensed exchange or enlist the services of such a person.

Unlisted derivatives (OTCs), have historically been largely unregulated. The large majority of OTCs in South Africa are traded and cleared bilaterally and there have been no central risk management regimes imposed outside of the limits which the counterparties impose upon themselves.

Following the 2007-2008 financial crisis, in line with its G20 obligations, South Africa begun the process regulating OTCs and is moving towards a system of central clearing by enacting the FMA, which requires (once fully implemented) that all future derivatives trading will need to be performed through central counterparties (CCPs). The counterparties will each contract with the CCP, which will result in the CCP taking settlement risk and thus being more circumspect in the types of transactions they allow.

No CCP's have, as yet, been licensed in South Africa and the regulation of the OTC market is currently managed through increased reporting requirements on entities which bilaterally clear derivative contracts. The latest draft amendments to the FMA include provisions to allow for the JSE Limited to act as clearing agent for OTCs until 2022, at which point all CCPs will need to be independently owned and managed.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Spain (such as a dealer) will ordinarily have to be authorized under the Securities Market Law, as such activity would be deemed as dealing on own account on financial instruments.

One of the key exclusions to the requirements above applies to persons who only deal in derivatives for risk management purposes.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in Sweden (such as a dealer) will ordinarily have to be authorized under the Securities Market Act 2007 (Lag (2007:528) om värdepappersmarknaden) if the transaction is one of the specified activities set out in the act such as:

• options;
• futures;
• swaps;
• contracts for difference; or
• rights to or interests in investments.

One of the key exclusions to the requirements above applies to persons who deal in derivatives for risk management purposes.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

A person, being a natural person or a legal entity, operating derivatives business in Thailand will ordinarily have to be authorized under the Derivatives Act B.E. 2546 (2003). 

A person entering into a derivative contract as a dealer in Ukraine will commonly be authorized under Ukrainian law, although the licensing procedure is not clear as the legislation on this is fragmented.

There is not yet sophisticated legislation governing the regulatory, insolvency and other aspects of derivative transactions. However, note that comprehensive amendments introducing European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) standards into local statutory law are now being considered by the Ukrainian Parliament and are expected to be adopted soon.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in the UK (such as a dealer) will ordinarily have to be authorized under the Financial Services and Markets Act 2000 if the transaction is one of the specified activities set out in Part II of the Regulated Activities Order or the derivative constitutes a specified investment under Part III of the Regulated Activities Order such as:

• options;
• futures;
• contracts for difference; or
• rights to or interests in investments.

One of the key exclusions to the requirements above applies to persons who deal in derivatives for risk management purposes.

Unless an exemption or exclusion applies, a person entering into a derivatives contract by way of business in the UK (such as a dealer) will ordinarily have to be authorized under the Financial Services and Markets Act 2000 if the transaction is one of the specified activities set out in Part II of the Regulated Activities Order or the derivative constitutes a specified investment under Part III of the Regulated Activities Order such as:

• options;
• futures;
• contracts for difference; or
• rights to or interests in investments.

One of the key exclusions to the requirements above applies to persons who deal in derivatives for risk management purposes.

The European Market Infrastructure Regulation applies to all derivative transactions and requires transactions to be reported to regulators, for transactions between dealers to be cleared or subject to other risk mitigation techniques such as initial margin and variation margin requirements.

The development of derivatives in the UAE has not been without its challenges for a number of years due to the lack of recognition of close-out netting and the absence of a UAE law dealing with derivatives contracts.  This is no longer the case with the recent introduction of Federal Law No. 10 of 2018 (the "Netting Law") which applies to counterparties based 'onshore' in the UAE.

Before the Netting Law, financiers would effectively be taking their chances with the UAE Federal Bankruptcy Law - which only allows set-off or netting of debts that are contractually agreed before the onset of insolvency. This left a great deal of uncertainty as to the enforceability of netting provisions in any post-insolvency scenario involving a UAE counterparty.

The new Netting Law is expected to provide greater certainty by recognising the  principle of close-out netting as incorporated into a master level agreement (intended to cover a series of derivatives transactions between two parties), by providing for a single 'net' amount to be payable - as between those parties - upon a close-out or termination. Furthermore, qualified financial contracts under the umbrella of a master agreement constitute a 'single' agreement which is essential for the purposes of netting multiple financial contracts entered into between the same two counterparties.

In the US the Commodity Futures Trading Commission (CFTC)and the Securities and Exchange Commission (SEC) share jurisdiction over the derivatives market depending on the underlying product that is being traded and whether the transaction is 'over-the-counter' (OTC) or traded on an exchange. In addition, banks and financial institutions are subject to the jurisdiction of the Prudential Regulators. Swap dealers and other entities that trade in large volumes need to be registered with the CFTC or the SEC depending on the underlying products being traded. In addition, US rules permit only 'eligible contract participants' (as defined under the Commodity Exchange Act) to enter into OTC derivatives.