Guide to Eligible Contract Participant Definition After October 12, 2012, only Eligible Contract Participants (“ECPs”) are permitted by law to enter into OTC derivatives transactions. Non-ECPs will no longer be able to use the line of business exemption. Eligible Contract Participants generally include: Entities with $10 million in total assets Entities with a guarantor that is an entity with $10 million in assets Entities with a net worth of at least $1 million and are hedging Individuals with “amounts invested on a discretionary basis” that exceed $10 million, or $5 million if hedging If an entity by itself does not qualify as an ECP, it may nonetheless qualify IF all of the following conditions are met: it must be entering into a swap (i.e., an interest rate, FX or commodity derivative and not a credit or equity derivative); it must…

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Is it scandalous? Yes. Should you be outraged? Absolutely. Were you economically harmed? For most hedgers, the answer is not likely. We’re talking, of course, about the LIBOR fixing scandal that has ensnared Barclays, and may very well indict other banks before all is said and done. Over $350 trillion worth of financial contracts are tied to LIBOR, so it’s not a stretch to say a scandal like this could shake the very foundations upon which modern capital markets are built! And just like an earthquake’s destructive power is measurable, on a 10-point scale from micro (1) to massive (10), this scandal, too, will be judged accordingly. But so far, it’s about a “2” – generally not felt, but recorded, for the majority of market participants who were hedging. While that could change with aftershocks (and there will be aftershocks,…

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Termination Risk Editor’s note: Editor’s note: This is the final episode of a three-part series on a hypothetical breakup of the Eurozone, and the corresponding currency and derivative contract issues that could follow. You can read the past episodes here:Episode 1: The Sovereign Menace Episode 2: Return of the Drachma A long time ago, in a monetary union far, far away… World economies braced for the inevitable breakup. Despite Eurozone members having many more ties than just a single currency, in the end austerity, capital flight, and contagion proved to be too much to overcome. The departing state’s interconnectedness would put many banks and businesses, even other nations, at grave risk of default. The monetary union thus shifted its focus towards shoring up the defenses of other at-risk states, and preparing the way for the first unilateral withdrawal from the…

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