Adoption of Singapore Law as the Governing Law for OTC Derivative Transactions

Abstract

This paper analyses the legal issues arising out of the adoption of Singapore law as the governing law of OTC derivative transactions. It first sets the scene by describing the Asian OTC derivatives market and Singapore’s status as an OTC derivatives hub. This then leads to the question as to whether there is scope for Asian market participants to consider using a governing law other than English or New York law for their OTC derivative transactions. It then explores in brief certain factors that contracting parties typically take into account when faced with a choice of governing law and the particular issues in relation to OTC derivative transactions. After having considered the various factors that are relevant to the choice of governing law, it discuss the significance of the governing law of a contract from a conflict of laws perspective.

The paper then considers in detail the use of Singapore law as the governing law for OTC derivative transactions and how the use of Singapore law will interact with the documentation used to govern OTC derivative transactions. The focus will be on the enforceability of the ISDA Master Agreement and its credit support documents, if they were governed by Singapore law. It also considers the amendments that are likely to be required if contracting parties elect to use Singapore law as the governing law of their ISDA Master Agreement and credit support documents. In addition, it considers certain potential ramifications from a practical perspective if contracting parties were to use Singapore law as the governing law of their ISDA Master Agreement and credit support documents.

Finally, the paper concludes that the use of Singapore law will be a viable option for Asian counterparties from a legal perspective. That said, the question as to whether market participants would adopt the use of an alternative governing law will depend on both legal and other practical and commercial considerations, as with the manner of any such adoption.

Keywords: Singapore law, OTC derivatives, governing law

JEL Classification: K