In response to current market volatility and uncertainty, we recommend clients consider taking the following steps to manage potential risks with respect to trading agreements and counterparties:
1. Review Trading Agreements - Thoroughly examine all terms in your ISDA Master Agreements, confirms, credit support annexes, repo agreements and prime brokerage documentation:
- Monitor NAV Triggers - Due to fluctuating asset values, pay close attention to NAV-related terms including testing frequency, calculation methods, required reporting and cure rights. Plan communications and strategies if breaches appear likely.
- Understand Margin Requirements - Review margin call procedures, notice methods, delivery timelines and grace periods. Be aware of any discretionary rights allowing counterparties to modify margin requirements or modify lockup arrangements.
- Assess Default Provisions - Analyze notification requirements, waiver rights and performance suspension options for potential default scenarios. Develop contingency plans for necessary amendments or strategic alternatives.
2. Manage Counterparty Risk - Monitor financial data and news about your counterparties. Consider default risks and replacement timeframes for critical service providers.
3. Enhance Communications - Prepare comprehensive outreach plans for investors and counterparties. Comply with all data requests, notification requirements and regulatory filings.
4. Review Liquidity Options - Understand redemption procedures, gate provisions and side pocket arrangements in fund documents and side letters.
5. Monitor Portfolio Limits - Stay vigilant about compliance with concentration limits (by issuer, geography or product type) during market fluctuations.
6. Consider Force Majeure Provisions - Evaluate potential remedies for performance disruptions and follow industry association guidance where applicable.
7. Track Market Disruptions - Monitor interest rate and currency fluctuations/capital controls, exchange or infrastructure disruptions, new regulatory restrictions and sanctions that could impact trading.
Haynes Boone's Investment Management and Derivatives Practice Groups are monitoring developments closely. Please contact your Haynes Boone representative with any questions.
