1 Documentation and Formalities
1.1 Please provide an overview of the documentation (or framework of documentation) on which derivatives transactions are typically entered into in your jurisdiction. If the 1992 or 2002 ISDA Master Agreements are not typically used, please describe the contracts which are used, as well as any appendices or annexures.
Typically, both the 1992 and 2002 ISDA Master Agreements (together with appropriate Schedules and credit support documentation, in the usual market form) are put in place by Cayman Islands entities to document derivative transactions.
1.2 Are there any variances in documentation for certain types of derivatives transactions or between certain types of counterparties in your jurisdiction? For example, what differences do you see between overthe-counter ("OTC") and exchange-traded derivatives ("ETD") or for particular asset classes?
Cayman Islands entities tend to use market standard documentation for all types of derivatives transactions. There are no variances in contractual documentation for different types of Cayman Islands counterparties and there is typically no use of any Cayman Islands law governed documentation.
1.3 Are there any particular documentary or execution requirements in your jurisdiction? For example, requirements as to notaries, number of signatories, or corporate authorisations?
No. Cayman Islands law will respect the governing law of the contract to determine execution requirements. It is, however, normal practice for Cayman Islands entities to authorise entry into the derivative agreements by way of board resolutions (or equivalent) and where those agreements are executed and delivered by way of deed, to note that such agreement is executed and delivered by way of deed.
1.4 Which governing law is most often specified in ISDA documentation in your jurisdiction? Will the courts in your jurisdiction give effect to any choice of foreign law in the parties' derivatives documentation? If the parties do not specify a choice of law in their derivatives contracts, what are the main principles in your jurisdiction that will determine the governing law of the contract?
The most often specified are New York law and English law. Cayman Islands courts will generally recognise the choice of governing law by the parties, assuming such governing law is legal, valid and binding as a matter of such law.
2 Credit Support
2.1 What forms of credit support are typically provided for derivatives transactions in your jurisdiction?
All generally accepted market standard credit support is generally recognised in the Cayman Islands, including collateral in the form of cash and securities.
2.2 How is credit support for derivatives transactions typically documented in your jurisdiction? For example, under an ISDA Credit Support Annex or Credit Support Deed.
A large number of derivatives transactions use an ISDA Credit Support Annex or Deed, although other forms of bespoke documentation can be used, depending on the nature of the transaction and commercial needs of the parties.
2.3 Where transactions are collateralised, would this typically be by way of title transfer, by way of security, or a mixture of both methods?
This is really dependent on the type of derivatives transaction and the governing law of the arrangements. Cayman Islands entities enter into derivatives transactions using both outright title transfer with a right of re-transfer and the grant of security over assets. However, in line with market trends, more derivatives transactions utilise a grant of security over assets.
2.4 What types of assets are acceptable in your jurisdiction as credit support for obligations under derivatives documentation?
There are no specific prohibitions under Cayman Islands law in this regard and so any asset capable of being secured can be. Most derivatives transactions involve liquid assets that are easy to take security over, such as cash or securities.
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This article first appeared in The International Comparative Legal Guide: Derivatives 2020, published by Global Legal Group in June 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.