Information Disclosure, Risk Trading and the Nature of Derivative Instruments: From Common Law Perspective

National Taiwan University Law Review, Vol. 4, No. pp. 1-53, 2009

54 Pages Posted: 8 May 2011

See all articles by Christopher C. Chen

Christopher C. Chen

Singapore Management University School of Law

Date Written: May 5, 2011

Abstract

This paper explores issues of pre-contractual disclosure for derivative instruments, of which this paper describes as contracts to trade risks, in the UK and US. While there is no general duty of disclosure in common law, this paper focuses on whether there should be a duty of disclosure for derivative instruments by comparing with securities law and insurance law. This paper argues that mandatory disclosure in the securities market cannot be extended to exchange-traded futures contracts (save where securities are involved) because of the nature of securities. In addition, this paper argues that derivative instruments, though similar to insurance in certain regards, lack the inequality of knowledge issue underlying contracts of insurance; and thus, derivative instruments should not be seen as another type of contract uberrimae fidei. However, while we cannot establish a duty of disclosure by treating derivative instruments like securities or insurance, we argue that the concepts of market abuse and insider dealing might provide a better basis for addressing information issues in the risk trading market.

Keywords: Derivatives, Duty of Disclosure, Information, Insider Dealing, Utmost Good Faith

JEL Classification: K10, K22

Suggested Citation

Chen, Christopher C., Information Disclosure, Risk Trading and the Nature of Derivative Instruments: From Common Law Perspective (May 5, 2011). National Taiwan University Law Review, Vol. 4, No. pp. 1-53, 2009. Available at SSRN: https://ssrn.com/abstract=1832203

Christopher C. Chen (Contact Author)

Singapore Management University School of Law ( email )

55 Armenian Street
Singapore, 179943
Singapore

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