Derivatives

Our leading Derivatives law practice focuses on the creation and use of derivatives and derivatives-based products in implementing investment, hedging, monetization, arbitrage, M&A and restructuring strategies. We act for leading banks, dealers and derivatives users, as well as for exchanges, clearing agencies and service providers.

Our derivatives specialists, located in each of our Canadian offices, have considerable transactional, regulatory and product experience and are supported by a team of dedicated practitioners in related specialty areas. Our cross-disciplinary approach (including Restructuring & Insolvency, Financial Services, Financial Services Regulatory, Capital Markets, Structured Finance, Tax, and Litigation & Dispute Resolution) allows us to provide efficient, creative, and solution-oriented derivatives advice.

The Blakes Derivatives practice began in the earliest days of the Canadian swaps market with the development of many of the formative opinions, documentation standards and legal structures in Canada. That commitment to the derivatives market continues today and can be seen through our frequent work for and with Canada’s securities regulators and industry associations like ISDA, as well as through regular client publications and speaking engagements on developing areas derivatives law. This industry work builds our know-how and brings a practical focus to the key issues facing our clients.

We also have a deep understanding of the broader issues and business context that affect our derivatives clients, including related accounting treatment for derivatives, the contracting capacity of institutional counterparties, the capital adequacy implications for financial institutions, the efficacy of collateral security arrangements and all aspects relevant to the validity and enforcement of derivatives and related collateral under Canada’s insolvency laws.

Blakes frequently plays an active role in helping to shape regulatory developments impacting over-the-counter (OTC), listed and retail, and debt-like derivatives in Canada. Several of our partners have assisted the Ontario Securities Commission and the Canadian Securities Administrators as they have developed securities-based rules to regulate OTC and retail derivatives, futures and marketplaces. Our experience dealing with the application of Canadian securities regulations to derivatives is unmatched among Canadian law firms and has become critical to our ability to advise clients, as the OTC derivatives market has become increasingly regulated. This orientation also positions us to understand and advise on the Canadian aspects of emerging issues of relevance to our derivatives clients, including topics such as artificial intelligence applications, cryptocurrencies, blockchain and benchmark regulation.

Over-the-Counter-Derivatives

Through many years and engagements, our derivatives practice has grown to cover the broadest spectrum of asset classes and transaction structures, including significant experience in relation to the use of derivatives in implementing investment, hedging, monetization, arbitrage, M&A and restructuring strategies.

We regularly act for sell-side and buy-side clients to negotiate and structure OTC derivatives across a wide variety of asset classes and provide critical advice in respect of Canadian legal requirements and regulatory considerations. This provides us with up-to-date knowledge of contracting and collateralization techniques, opinion requirements and standards, transaction types and their commercial objectives, “market standard” expectations in contracting, enforcement techniques and pitfalls, and the impact of ongoing derivatives regulatory developments in areas such as trade reporting, clearing, execution, margin, business conduct and dealer registration requirements.

Our engagements often involve cross-border transactions, which in turn require us to understand and respond to global practices and requirements in a practical and integrated manner. We also frequently assist banks and pension plans with template reviews of trading documentation and borrower clients to establish hedging programs.

Recent transactional mandates include:

Representing several of Canada's largest banks to draft and negotiate amendments to ISDA CSAs to address regulatory margin rules, including managing the re-papering of a significant portion of their existing ISDA counterparty documentation.
Advising international dealers to “Canadianize” their documentation for OTC derivatives transactions.
Advising U.S.-based broker-dealers to implement structured share-buyback solutions in Canada, including ASRs, program share repurchases, VWAP minus trades and equity compensation plan hedging swaps.
Structuring and documenting cross-border equity total return swap program.
Structuring forward transactions for public prospectus-offered investment funds that use forwards for investment purposes.
Providing derivatives advice to Canadian pension plans in connection with novel investment structures.
Advising borrowers on complex hedging arrangements for secured lending and infrastructure transactions.

Opinion matters:

Blakes is regularly engaged in opinion work for numerous Canadian and international financial institutions, insurance companies, pension clients, investment funds and securitization entities, relating to a range of trading agreements and counterparty types. This work includes:

Issuing netting and collateral opinions for ISDA, MSFTA, GMRA, GMSLA, MRA, MSLA, futures account agreements and prime brokerage agreements covering a broad range of specific counterparties.
Issuing netting and collateral opinions for bank-specific (non-ISDA) derivatives master agreements.
Issuing netting and collateral opinions for futures and clearing agreements and account control agreements.
Issuing netting and collateral opinions for reinsurers and securitizers.
Issuing custody and sub-custody opinions.
Drafting pre-insolvency enforceability riders with qualifications for 1992 and 2002 ISDA enforceability opinions.

Derivatives regulatory matters:

Blakes has played and continues to play an active role in helping to shape regulatory developments impacting OTC derivatives in Canada. We have played a leading role in the following:

Representing Canada’s six largest Schedule I banks to obtain OTC derivatives trade-reporting exemptive relief across Canada.
Acting as counsel to ISDA, including in connection with commenting on OSFI Guideline E-22 – Margin Requirements for Non-Centrally Cleared Derivatives and drafting of the Canadian Cash Collateral Appendix that forms part of the Exhibit NY-New.
Advising the Ontario Securities Commission in relation to the development of securities rules governing derivatives, including formulating rules that regulate OTC derivatives, advising on the commercial and insolvency aspects of collateral and clearing arrangements.
Assisting ISDA in the preparation of its comment letter on the initial draft of the CSA’s National Instrument 93-101: Business Conduct.
Advising Canadian banks, fund sponsors, investment advisers and exchanges on various aspects of the proposed “business conduct” and “dealer and adviser registration” requirements.
Advising several banks regarding the conduct of derivatives business on a cross-border basis in compliance with Bank Act restrictions, including structuring commodities derivatives and physical business to meet Bank Act requirements.

Insolvencies and Restructurings

We have considerable experience with termination, close-out and enforcement scenarios involving insolvent counterparties, including significant roles in relation to failed financial institutions and structured credit products during the financial crisis. In particular, we played a leading role in the structuring and implementation of the C$35-billion restructuring of non-bank asset-backed commercial paper.

Tax

Many of the derivatives and derivatives-based transactions and strategies we see require critical tax planning. Our leading national Tax practice includes practitioners with market-leading experience in relation to the design and use of derivatives.

Retail Derivatives

Blakes is a leader in advising clients on innovative retail derivatives offerings. Product work includes:

Linked Notes Programs

Acting for several Canadian banks and dealers and several foreign banks, we have designed and implemented numerous programs for the creation and sale of linked notes tied to equities, indices, fixed-income instruments and rates, currencies and commodities. Among our mandates, we successfully implemented the first programs under which principal-at-risk notes were permitted to be distributed under a shelf prospectus in Canada.

Warrants

Acting for several Canadian banks and dealers, we have designed and implemented multiple programs for the creation and sale of cash-settled and physically settled derivative warrants linked to equities, indices, fixed-income instruments and rates, currencies and commodities. Among our mandates, we successfully implemented the first programs under which cash-settled and physically settled derivative warrants were permitted to be distributed under shelf prospectuses in Canada.

Strips, Coupons and Residual Programs

Acting for a Canadian bank, we implemented a program permitting the efficient division of fixed-income instruments into underlying cash flow streams and the combination of those streams into composite financial instruments.

Split Shares

Acting for several leading securities dealers, we have designed and implemented programs and single offerings permitting the efficient division of equities into underlying capital and dividend streams.

Retail Structured Products

Our market leading practice has incorporated derivatives and derivatives-based strategies into a wide range of innovative investment fund products designed to facilitate cost-efficient, thematic investments in underlying investments by retail investors.

Derivatives-Based Strategies

We are often engaged to work on customized derivatives-based investment, risk management, funding and acquisition strategies. Our expertise in the key areas of securities, tax and insolvency law, and our broad exposure to existing transaction structures, allow us to efficiently provide structuring solutions and documentation.

Repurchase Transactions and Securities Lending

We frequently advise on securities repurchase and securities lending transactions, including the negotiation of master agreements such as the GMRA, MRA and GMSLA, the provision of tax advice on cross-border transactions and the documentation of triparty arrangements and structured term repurchase facilities.

Derivatives Regulatory Matters

Blakes has played and continues to play an active role in helping to shape regulatory developments impacting futures, listed and retail derivatives, and debt-like derivatives in Canada. We have played a leading role in the following:

Advising the Ontario Securities Commission in relation to the development of securities rules governing derivatives, and participating in the OSC’s Debt-like Derivatives Committee and its Securities Advisory Committee.
Providing leading securities regulatory advice in the investment fund sphere for banks and funds relating to derivatives matters, including rules regarding custody, pledging and use of collateral. Regularly engaging in discussions with the OSC on these topics, including through prospectus reviews.
Actively participating in the comment process in connection with the proposed national capital markets regulatory scheme, including derivatives aspects.