Derivatives

What we do

Derivatives are investment products derived from existing assets with a certain degree of complexity. In essence, a derivative is an agreement with a financial service provider. The value of a derivative is linked to an underlying instrument such as stocks, bonds, indices, or commodities. There are also derivatives linked to benchmark interest rates, as is the case with interest rate derivatives.

Banks and asset managers are subject to a special duty of care regarding the financial position and risk profile of clients. The special duty of care of financial service providers aims to protect investors against unsound advice. This special duty of care is most far-reaching for private, inexperienced investors. Unsound advice and a breach of the duty of care can result in liability for the investment advisor.

Within our Financial Law practice group, we deal with various issues relating to derivatives, investment advice, breaches of the special duty of care, and misleading conduct. We also advise on investment instruments and their implications.

We have the knowledge and expertise to assume diverse roles: from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in the fields of derivatives and financial law. Contact us to discuss the possibilities.

Types of derivatives and their legal context

The term derivatives encompasses a wide range of financial instruments. The most common forms are options (the right to buy or sell an underlying asset), futures (standardized, exchange-traded forward contracts), forwards (non-standardized, privately traded forward contracts), and swaps, including the well-known interest rate swap. In addition, there are currency derivatives, commodity derivatives, and structured products such as notes. Each type has its own risk profile and legal considerations. We advise both international corporations hedging their currency and interest rate risks and smaller entrepreneurs who have been unexpectedly confronted with a complex product. For specific issues surrounding interest rate swaps and well-known swap cases, we refer you to our page on interest rate swaps and interest rate derivatives.

Legal basis in a derivatives dispute

When a derivative turns out badly, there are various legal avenues to improve your position. A misrepresentation of facts when entering into the product can lead to annulment due to error pursuant to Article 6:228 of the Dutch Civil Code; all payments made between the parties must then be reversed. If the bank provided advice without acting as may be expected of a reasonably competent and reasonably acting advisor, there may be a case of attributable failure (Article 6:74 of the Dutch Civil Code) or a breach of the special duty of care incumbent on the bank, which qualifies as a tort within the meaning of Article 6:162 of the Dutch Civil Code. For each of these grounds, the facts must be carefully documented. We will assess which basis has the strongest case in your situation.

Duty to complain and statute of limitations

In a derivatives dispute, acting in a timely manner is crucial. Pursuant to the duty to complain under Article 6:89 of the Dutch Civil Code, you must file a complaint with the financial service provider within a reasonable time after you have discovered a defect in the product (or should reasonably have discovered it); if you do so too late, you may forfeit your rights. In addition, limitation periods apply: a claim for compensation for damages generally lapses after five years (Article 3:310 of the Dutch Civil Code), while a claim for annulment due to error lapses after three years from the date the error was discovered (Article 3:52 of the Dutch Civil Code). Because the starting point of these periods is often open to debate, it is worthwhile to have your case legally assessed early on.

EMIR: European rules for derivatives contracts

In addition to civil law, derivatives are also subject to the European EMIR (European Market Infrastructure Regulation). EMIR makes trading in over-the-counter (OTC) derivatives more transparent and safer and explicitly affects non-financial companies that use derivatives to hedge risks. The regulation includes, among other things, a clearing obligation for certain standardized contracts via a central counterparty, a reporting obligation requiring every derivatives contract to be reported to a transaction register, and risk mitigation techniques for contracts not centrally cleared, such as timely confirmation, portfolio reconciliation, dispute resolution, and the exchange of collateral (margin). We help companies map out and comply with their EMIR obligations so that a hedging instrument does not unintentionally become a compliance risk.

Supervision under the Wft and MiFID II

Providers of and advisors on derivatives are subject to public law supervision. The Financial Supervision Act (Wft) and the European MiFID II Directive set requirements for the provision of information, suitability and appropriateness assessments, and investor protection. A violation of these standards often affects the civil law assessment of the duty of care. We combine knowledge of financial supervision with civil litigation, ensuring that public and private law reinforce each other in your case.

Our approach: from advice to proceedings

Our mixed teams of lawyers and in-house counsel begin with a thorough review of the documentation: the framework agreement, product terms, advisory processes, and communication with the bank. Based on this, we determine the strategy, whether that involves settlement negotiations, a complaint to the Kifid, or going to court. For the judicial route, you can turn to our financial litigation. Whether you are an international group or the baker around the corner, we translate complex financial structures into understandable legal choices.

Part of our expertise in Financial Law

Derivatives constitute a specialty within our broader Financial Law. From this area of ​​law, we advise on the full spectrum of banking and financial matters, from investment advice and prospectuses to supervision and litigation. This interconnectedness allows us to always place a derivatives issue in the proper context.