Table of Contents

Yeowart and Parsons on the Law of Financial Collateral

Yeowart and Parsons on the Law of Financial Collateral

Elgar Financial Law and Practice series

Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

This book is the first of its kind to offer a systematic examination of the whole law relating to financial collateral. It does so in two parts. First, it explains the law created by the Financial Collateral Arrangements (No 2) Regulations 2003, the Directive it implemented and related legislation. Second, it examines how financial collateral is used in practice in a range of different markets. It will be an essential reference point for all legal practitioners operating in financial markets.

Chapter 3: THE TYPES OF FINANCIAL COLLATERAL: CASH, FINANCIAL INSTRUMENTS AND CREDIT CLAIMS

Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

Subjects: law -professional, finance and banking law

Extract

The question is important because, without financial collateral, there cannot be a financial collateral arrangement, and without a financial collateral arrangement, the protections afforded by the Financial Collateral Arrangements (No. 2) Regulations 2003 (‘FCARs’) are not available. This chapter therefore looks at the definition of ‘financial collateral’ and how it is likely to be interpreted. ‘Financial collateral’ is defined as cash, financial instruments or credit claims. ‘Credit claims’ were only included as financial collateral as from 6 April 2011. Greenhouse gas emission allowances are not presently included as financial collateral, but it has been suggested that they should be. ‘Cash’ means ‘money in any currency, credited to an account, or a similar claim to repayment of money and includes money market deposits and sums due or payable to, or received between the parties in connection with the operation of a financial collateral arrangement or a close-out netting provision’. ‘Cash’ obviously includes a deposit or credit balance held by a customer with a bank. In Gray v G-T-P Group Ltd Re F2G Realisations Ltd (in Liquidation) (‘Gray’), the financial collateral consisted of the balance from time to time standing to the credit of a bank account in the name of G-T-P Group Ltd. It appears to have been accepted as common ground that the customer’s interest in the credit balance was ‘cash’ for the purposes of the FCARs.

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