Derivatives

Regulatory and Policy

Our lawyers’ prior agency experience and government service in the CFTC, Securities and Exchange Commission (SEC), U.S. Senate, House of Representatives, and White House lends to a unique understanding of the structures, politics, processes, and players at the relevant regulatory agencies and prudential banking regulators when representing clients before U.S. and non-U.S. regulators and policymakers.

Our Derivatives Group:

• brings extensive experience in advising clients on both exchange-traded and over-the-counter derivatives, their markets, and the regulatory oversight regime;
• advises on interest rate, FX, commodity, credit, and equity derivatives transactions;
• utilizes institutional knowledge of processes and interpretations at the CFTC, SEC, and federal banking regulators, as well as with regulators in Europe, the Middle East, and Asia-Pacific region;
• routinely advises on the prudential requirements of the federal banking regulators, including capital and liquidity requirements, and resolution planning;
• understands and tracks U.S. and international derivatives regulations, including their effects on cross-border and multinational entities;
• brings first-hand knowledge of the challenges that registrants face in implementing, building, and maintaining compliance frameworks in conformance with derivatives regulations;
• runs the Coalition for Derivatives End-Users which represents the views of end-user companies that are using derivatives to primarily manage the risks of their businesses before U.S. and non-U.S. regulators and policymakers;
• advises financial institutions on the insolvency treatment of specific arrangements and entities in connection with netting and collateral opinions;
• advises on product choice and structuring;
• advises on registration requirements and related exemptions;
• regularly represents clients before the CFTC, SEC, federal banking regulators, and European regulators; and
• develops and implements strategies for achieving policy objectives.

Transactional Advice

The Derivatives Practice Group’s transactional derivatives expertise covers the full range of over-the-counter and exchange-traded products, including equity derivatives, credit and total return products, commodity, interest rate and foreign exchange hedges, including deal-contingent forward transactions, credit- and equity-linked securities issuances, and convertible and exchangeable note transactions. In the equity derivatives space, the Derivatives Group has extensive experience in equity collar structures, total return swaps, accelerated share repurchase transactions, share forward transactions and options, call spread and capped call transactions relating to convertible notes, and various hybrid structures. We also have significant experience in securities repo transactions, stock lending arrangements, and securities forward transactions.

Our representations cover not only transaction structuring, negotiation, documentation, and execution, but also ongoing legal risk management and enforcement, including defaults and close-outs, and regulatory-inquiry responses on a domestic and cross-border basis. We regularly interact with our clients’ treasury, operations, and accounting departments to ensure proper and practical procedures around complex derivatives transactions. Our work involves establishing products, structures, hedging strategies, and accompanying policies and procedures.

CFTC Enforcement and Parallel Investigations

The Derivatives Practice Group has substantial experience handling CFTC enforcement investigations and actions. Our team conducts internal investigations and root cause analyses for companies regulated by the CFTC, regulatory compliance, and remediation. Over the years, our team has represented clients in some of the most high-profile enforcement initiatives conducted by the CFTC, including investigations and enforcement actions involving the alleged false reporting and manipulation of LIBOR and other benchmarks, the manipulation of foreign exchange rates, spoofing, swap reporting violations, the manipulation of precious metals futures, failure to supervise violations, registration matters, and other various forms of alleged disruptive trading practices.

In recent years, companies involved in CFTC investigations often face parallel investigations conducted by the U.S. Department of Justice (DOJ), SEC, the Financial Crimes Enforcement Network (FinCEN), Federal Energy Regulatory Commission (FERC), and foreign regulators. The Derivatives Group routinely handles multi-faceted, parallel investigations—working closely with the firm’s White Collar Defense and Investigations, Securities Enforcement, and Energy, Regulation and Litigation Practice Groups. We staff these matters with cross-disciplinary teams that not only bring a keen understanding of exchange-traded, OTC derivatives, and physical commodity products, but also have decades of experience working in high-level positions for regulators and law enforcement agencies such as the CFTC, DOJ, FinCEN, SEC, FERC, and the UK’s Financial Conduct Authority (FCA). The firm’s global presence allows us to provide clients with cross-border teams that seamlessly coordinate in responding to multi-national investigations.

Legal Challenges to Agency Action

Gibson Dunn’s renowned Administrative Law and Regulatory Practice Group has routinely and successfully challenged some of the most consequential agency actions of the federal government, including rulemakings by the CFTC and SEC. The Derivatives Practice Group works closely with the Administrative Law and Regulatory Practice Group in analyzing and challenging agency actions and regulations involving derivatives — from rulemakings to enforcement. In International Swaps & Derivatives Association and Securities Industry & Financial Markets Association v. CFTC, Gibson Dunn successfully challenged the CFTC’s rule, imposing position limits on 28 commodities, which resulted in the U.S. District Court for the District of Columbia vacating the rule on the ground that the CFTC had erroneously interpreted the CEA. Similarly, in Securities Industry & Financial Markets Association v. CFTC, we successfully challenged the CFTC’s cross-border .

Private Litigation

CFTC enforcement actions often spawn class actions and stand-alone private actions brought under the CEA. When it comes to private litigation arising from alleged violations of the CEA and related theories, the depth and breadth of our derivatives litigators’ expertise ensures that every case, from complex class actions to stand-alone matters and parallel proceedings, is approached with a comprehensive strategy from the outset that draws upon our team’s strengths across multiple practice areas. Our award-winning Class Actions, Appellate and Constitutional Law, Antitrust and Competition, Administrative Law and Regulatory, Environmental Litigation and Mass Tort, and Securities Litigation Practice Groups regularly work together to craft a multi-disciplinary approach that anticipates issues early and leverages our team’s wide-ranging skills to custom tailor its defense. These synergies bolster efficiency in defending complex cases involving alleged manipulation of commodities markets, the prices of exchange-traded and over-the-counter derivatives, and other complex financial instruments.

We have achieved numerous significant victories for clients in private CEA cases, including:

• the full dismissal of claims against our client, a large investment bank, in the high-profile class actions alleging manipulation of the gold, silver, platinum, and palladium financial benchmarks;
• the dismissal of multiple CEA claims;
• the rejection of certification in the sprawling class actions alleging manipulation of LIBOR and other international benchmarks;
• and twice defeated CEA and antitrust actions against another client, a major transnational energy company, alleging manipulation of natural gas trading prices.