German Master Agreement for Derivatives

Such circumstances are usually described in the termination provisions of the respective contract. The German framework agreement stipulates that it terminates without notice in the event of “insolvency”. Such insolvency within the meaning of this provision exists where an application for commencement of insolvency proceedings is filed against the assets of a party and that Party (i) has filed the application itself or such an application has been made by a competent authority, or (ii) is generally unable to pay its debts when due; or is otherwise in a situation that justifies the commencement of such proceedings. In addition, the German Framework Agreement stipulates that either party may terminate it for good cause. It also provides that an important reason is the circumstances in which the payment or other service due, for whatever reason, has not been received by the beneficiary within three banking days of notification of the non-receipt of payment or any other non-performance. The German Framework Agreement does not contain a complete list of events that constitute a serious cause. However, the concept of termination for cause is firmly established in German law. According to this concept, a Contracting Party has the right to terminate an agreement if, having regard to all the relevant circumstances and the interests of each Party, it is no longer reasonable for it to perform the agreement. Because of the universality of the concept, it is difficult to define the events that would constitute a serious cause in all circumstances. However, the concept has proven to be feasible in practice. Termination for cause also applies to a derivative contract under German law if it is concealed as to the circumstances in which it may be terminated. All the provisions set out in the above question may apply to derivatives transactions in the circumstances described and may result in the recovery of amounts or assets paid in connection with such derivative transactions.

1.3 What applicable law in your jurisdiction is most often set out in the ISDA documentation? Will the courts in your jurisdiction implement a choice of foreign law in the documentation of the parties` derivatives? If the parties do not specify a choice of law in their derivative contracts, what are the main principles of your jurisdiction that determine the law applicable to the contract? The German framework agreement is the German framework agreement, also known as the “DRV”[1] or simply the former “framework agreement”. It is published by the Federal Association of German Banks and is available in at least three variants, all subject to German law. I know very little about them, other than their names, and that they are used for swaps, repo and equity loans: 3.3 Are there any other practical or regulatory requirements for counterparties wishing to enter into derivatives transactions in your jurisdiction? For example, obtaining and/or maintaining certain licenses, approvals or approvals (governmental, regulatory, shareholder or other) or delegating certain regulatory responsibilities to a company with broader regulatory approvals. 6.2 Would a portion of a payment relating to derivative transactions be subject to withholding tax in your jurisdiction? Does your answer depend on the asset class? If so, what are typical methods to reduce or limit the burden of source deductions? The currency of termination in a framework agreement for derivatives transactions may be denominated in a currency other than the euro. Outside insolvency proceedings, a net termination amount denominated in a currency other than the euro is enforceable. In insolvency proceedings, claims for payment in foreign currency against an insolvent party shall be converted at the time of their recognition to participate in the distribution of any liquidation proceeds at the exchange rate in force at the place of payment at the time of commencement of insolvency proceedings. A claim of the solvent party arising from a framework agreement on derivatives transactions for a net termination amount denominated in a currency other than the euro would therefore be enforceable only in the context of insolvency proceedings converted into euro. After a large number of significant regulatory changes with regard to derivatives transactions in recent years, in particular due to EMIR and MiFIR/MiFID II, no significant changes in this area are currently to be expected or expected in Germany. However, we note that the EU Benchmarks Regulation and the ongoing transitions to benchmarks will continue to have an impact on derivatives transactions. 7.1 Are there any important considerations including market participants who wish to enter into derivatives transactions in your jurisdiction? Please indicate any cross-border issues that occur when booking or receiving guarantees from foreign counterparties (e.B restrictions on foreign currencies) or restrictions on portability (e.B.

assignment and novation, including notification mechanisms, deadlines, etc.). Market participants wishing to enter into derivatives transactions in Germany, in particular with end-users of derivatives or less sophisticated parties, should be aware of the contractual advisory obligations that the German courts have declared applicable in such circumstances. Apart from this and the other issues raised above, we are not aware of any other important considerations that should be taken into account by these market participants. 2.4 Are there specific margin requirements in your jurisdiction to guarantee all or part of the categories of derivatives transactions? For example, are there requirements to account for the initial margin or the margin of variation between counterparties? Credit support in the form of a margin of variation is usually provided as part of a hedging agreement for the transfer of ownership. Loan support in the form of an initial margin is usually provided as part of a hedge interest guarantee. In addition, collateral arrangements with interest on collateral are used in a limited number of other circumstances, such as equity derivatives where the underlying equity securities are pledged or where the special needs of a counterparty require a collateral arrangement for collateral interest instead of credit support for the transfer of ownership. The specific documentation of the framework contract is used for certain types of counterparties. This mainly concerns (i) capital management companies that enter into a framework agreement in respect of an investment fund managed by that company and (ii) mortgage banks that enter into framework agreements relating to separate asset pools that guarantee certain types of covered bonds issued by such a mortgage bank. The main purpose of that specific documentation on framework contracts is to ensure the conclusion of a separate framework agreement for each of those investment funds or asset pools, whose claims are deferred from other framework agreements concluded by the same capital management company or mortgage bank.


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