SEMINAR AGENDA
DAY ONE: APRIL 5, 2017
8:00 AM
Registration and Continental
Breakfast
8:30 AM
The 1992 ISDA®
Master Agreement:
Ø
Section-by-section review and analysis of the
1992 ISDA®
Master Agreement
Ø
Review of key differences between the 1992
and 2002 ISDA®
Master Agreements
10:00 AM
Morning Break
10:15 AM
Schedule to the
1992 and 2002 ISDA® Master Agreement
Ø
Review of adequate assurances provisions in
the ISDA®
Schedule
Ø
Examination of relevant calculation agent
issues
Ø
Identifying the relevant bankruptcy code
representations in the ISDA® Schedule
Ø
The pros and cons of cross-product and
cross-affiliate netting and setoff
Ø
Damages and close-out methodologies
Ø
Events of Default and Termination Events
Ø
Counterparty default management
Ø
Set-Off provision
Ø
Interest rate provisions
11:45 Noon
Lunch
1:00 PM
ISDA® Protocols and Annexes
Ø
August 2012 and March 2013 ISDA® Dodd-Frank
Protocols
Ø
EMIR Protocol requirements for the U.S.
companies
Ø
Margin Protocol
Ø
Mandatory reporting requirements obligations
for end-users
2:30 PM
Afternoon Break
2:45 PM
Using
ISDA® Master Agreement for Physical
Commodity Transactions
Ø
Oil Annex
Ø
Power Annex
Ø
Gas Annex
Ø
Bridge Agreement
Ø
4: 15
PM
End of Day One Session
DAY TWO: APRIL 6, 2017
8:00 AM
Continental Breakfast
8:30 AM
1994 ISDA® Credit Support
Annex
Ø
Section-by-section review and analysis of
1994 ISDA® Credit Support Annex
10:00 AM
Morning Break
10:15 AM
Paragraph 13 to Credit Support Annex
Ø
Relevant issues when negotiating exposure
thresholds
Ø
Parent guarantees considerations in
derivatives transactions
Ø
Letters of credit as collateral for
derivatives transactions
Ø
Margin calculation procedures
Ø
Collateral management for derivatives
transactions
11:45
Lunch
1:00 PM
Review of Supporting
Documentation for ISDA® Master
Agreement
Ø
Board resolutions and incumbency certificates
Ø
Risk management and trading policies and
procedures for derivatives transactions
Ø
Review of recent regulatory development
impacting ISDA® agreement
2:30 PM
Afternoon Break
2:45 PM
Negotiation Strategies for Over the Counter derivatives
Ø
Managing counterparty and operational risk in
derivatives transactions
Ø
Memorializing derivatives transactions with
long-form confirmations
Ø
Questions and answers
4:15 PM
Closing Remarks
Agenda is subject to change.
REGISTRATION FEE - $ 1,599.00
We suggest registering at least two weeks in advance to ensure your seat.
Seminar will be held at the Scott Conference Center located at 6450 Pine
St., Omaha, NE 68106 (www.scottcenter.com).
ISDA® is a registered
trademark of the International Swaps and Derivatives Association, Inc. This
seminar is neither sponsored by nor affiliated with the International Swaps
and Derivatives Association, Inc
SEMINAR INSTRUCTOR: Miki
Kolobara, Esq.
Mr.
Miki Kolobara, Esq. is the managing attorney at Kolobara Law Firm, LLC. He
practices primarily in commodities and derivatives trading law with
particular emphasis on energy trading, risk management, and compliance.
Prior to founding Kolobara Law Firm, Mr. Kolobara spent 15 years working for
several large energy companies where he assisted in creating and
implementing trading policies and procedures, drafting standard trading and
credit documentation, and training front and middle office personnel about
legal and contractual aspects of energy trading. He has negotiated hundreds
of master agreements and documentation for physical and financial
transactions, as well as structured transactions for natural gas,
electricity, coal, crude oil, and emissions allowances.
Currently Mr. Kolobara assists clients with drafting, negotiating and
managing standard trading and credit agreements for physical and financial
energy commodities including natural gas, power, crude oil, NGLs, propane,
electricity, LNG, RECs and ethanol, as well as various agreements for
transportation, capacity releases, storage, park and loan, asset management
and energy management agreements. In addition, he advises market
participants on identifying, creating and implementing comprehensive
trading, credit risk, and risk management policies and procedures; providing
regular training and guidance to ensure employee compliance with relevant
regulations and market rules including Dodd-Frank implementation,
anti-manipulation training, and various CFTC and FERC rules and regulations.
Mr. Kolobara’s practice includes advising senior management, risk oversight
committees, and corporate boards on trading compliance implementation and
risks, trading-related bankruptcy issues, strategic trading and hedging
matters, risk management matters, counterparty performance issues, credit
disputes and contract disputes.
Mr. Kolobara serves on the Futures and Derivatives Law Committee of the
American Bar Association, as well as the North American Energy Standards
Board's contracting committee where he participated in drafting the NAESB
standard master agreement for natural gas trading. Additionally, he is
active in the International Energy Credit Associations' Contracts and Legal
committee and its Dodd-Frank Act working group. As a member of the WSPP
contracting committee, Mr. Kolobara participated in drafting of the WSPP
standard master agreement for electricity trading.
Mr. Kolobara is a frequent speaker on topics related to energy trading,
hedging, risk management, and compliance. He can be contacted via email atmiki@kolobara.com
or by visiting his firm’s web site at www.kolobaralaw.com.
FERC PROPOSES A SIGNIFICANT INCREASE IN REPORTING
REQUIREMENTS
On July 21, 2016, the Federal Energy Regulatory Commission (“FERC”) issued a
Notice of Proposed Rulemaking (“NOPR”) titled Data Collection for Analytics
and Surveillance and Market-Based Rate Purposes. The NOPR is intended to
collect certain market data from market-based rate (“MBR”) electricity
sellers, incorporating data about their affiliates, including natural gas
and electricity companies (“Connected Entities”). As FERC increases its
emphasis on market surveillance, the NOPR appears to be tailored to bring to
light any corporate or financial connections that may exist among various
market participants involved in buying, selling, transporting, or producing
natural gas, electricity, and coal. The NOPR provides, in relevant part,
that “the Commission observed that there is a risk that a market participant
may take actions to benefit another entity that bears a financial or legal
relationship to it, and that entities under common control may collude to
manipulate the market. Given the potential for such conduct, the Commission
found it needed to understand the relationships and corresponding incentives
between entities to help determine whether they might be engaging in acts of
market manipulation.” This emphasis on cross-affiliate and cross-commodity
activity is consistent with recent regulatory scrutiny by energy regulators.
Consequently, the information required to be reported by the NOPR would
allow FERC’s staff to monitor a large number of trades, physical and
financial, and cross-reference any unauthorized or suspicious activity.
The NOPR includes two different and somewhat overlapping reporting
requirements. The first reporting requirement is MBR-related information. In
particular, FERC intends to use this type of information to determine
whether market participants should be permitted to obtain or maintain a
market-based rate. This information would include an evaluation of market
participants’ and their affiliates’ horizontal and vertical market power.
This type of information gathering is very similar to what FERC already
requires from market participants seeking an MBR. The second group of
reporting requirements is related to market surveillance and analytics,
i.e., the potential for market manipulation (“Connected Entity
information”). The NOPR emphasizes that “screening market activity for
anomalies must include understanding the circumstances surrounding a given
pattern of trading, including the possible motivations for that behavior,
which can sometimes be found in the legal or contractual relationships
entities bear to one another.” The NOPR’s Connected Entity information
requirements apply not only to the MBR holders but, also, to any affiliated
entity that trades virtual products or financial transmission rights
(“FTR”). The NOPR’s reporting requirement would not apply to municipal and
cooperative entities.
Some of the information required to be reported under the NOPR includes the
following:
1. The “Connected Entity Ownership” - the identity of an MBR holder’s
affiliates that: (a) are ultimate owners; (b) participate in organized
wholesale electric markets; or (c) purchase or sell financial natural gas or
electric energy derivative products that settle off the price of electric or
natural gas energy products, which would, arguably, include any entity in
the MBR holder’s enterprise, including the foreign based entities that trade
in any financial products on ICE, CME, or NGX.
2. Information about an MBR holder - as an electricity seller, such as
category status for each region in which the reporting entity has MBR
authority, markets in which it is authorized to sell ancillary services,
mitigation, if any, and whether it has any limitations in the regions in
which it has MBR authority.
3. MBR “Ownership” information – this information would include affiliate
owners that are: (a) ultimate affiliate owners and (b) affiliate owners that
have a franchised service area or MBR authority or directly own or control
generation, transmission, intrastate natural gas transportation, storage or
distribution facilities, physical coal supply sources, or ownership of or
control over who may access transportation of coal supplies.
4. “Connected Entity Trader” and “Contracts information” - connected entity
trader information would include any employees within an MBR holder’s
connected entity, i.e., affiliates, that participate in making day-to-day
trading decisions. Contracts information would include any entities that
have entered into an agreement with the MBR holder that “confers control
over an electric generation asset that is used in, or offered into,
wholesale electric markets.” Agreements that confer control are those that
grant one of the parties the right to make trading decisions for an electric
generation asset of another party or to offer an electric generation asset
into the wholesale electric markets.
5. Asset ownership information – identifying the location, capacity, and
percentage of ownership of electric generation and transmission assets and
any assets that are owned or controlled by any MBR holder’s affiliate that
does not have MBR authority. This would include any MBR holder’s affiliated
entity that owns, actively or passively, any generation assets, or parts of
those assets, including any joint ventures or special purpose entities.
The NOPR does not provide any empirical rationale for such a sweeping data
harvest. In other words, it is unclear how often any type of cross-affiliate
misconduct does occur in the market place and how frequently this type of
misconduct rises to a level of a prohibited or manipulative outcome such as
inappropriately influencing a price formation or operational reliability of
the market as a whole. The very possibility that some market participants
may do something, without any specific data indicating the frequency or
severity of actual misconduct, makes it unclear if the associated costs of
compliance, imposed on all MBR holders and their affiliates, are adequate
and reasonable. To that end, there is a risk that this NOPR may appear to be
a solution in search of a problem, rather than a problem in search of a
solution.
If adopted as a final rule, the NOPR would impact many energy companies,
especially those that engage in a diversified type of energy activities such
as producing, transporting, processing, and marketing of electricity,
natural gas, and coal. Given the traditional silo approach to many energy
companies’ operational and financial functionality, it would be imperative
to ensure an enterprise-wide approach to ensure compliance with the NOPR.
This would include a strong risk management policy to ensure that any
trading strategy approved by the senior management includes a
cross-affiliate and/or cross-commodity vetting process to ensure that all
trades stand on their own economics and, also, to prevent any prohibited
trading conduct. The costs of the NOPR’s implementation are difficult to
anticipate because they may include a significant cross-affiliate effort to
create, train, and implement a variety of compliance steps including
reconciling risk systems, trade-capture procedures, scheduling or dispatch
activities, trading policies and procedures, and cross-affiliate system
integration. The NOPR provides a 45-day comment period after it is published
in the Federal Register.
Kolobara Law Firm Has Moved
The office of Kolobara Law Firm has moved to a new location at 12020
Shamrock Plaza, Suite 105, Omaha, Nebraska, 68154. This new location allows
us to assist our clients in a more efficient manner.
Our new telephone and fax numbers are (402) 881-3987 and (402) 778-5135,
respectively. We look forward to assisting our clients from our new
location.
CFTC Eliminates Trade Option Reporting For
Commercial Market Participants
On March 16, 2016, the Commodity Futures Trading Commission (the “CFTC”)
adopted a final rule that eliminates reporting and recordkeeping
requirements by “end-user” counterparties to trade option transactions. The
final rule will become effective upon publication in the Federal Register.
The immediate impact of the final rule is that end-users will not have to
file Form TO by April 1, 2016, as would have been required by an earlier
no-action letter issued by the CFTC. The final rule appears to be mainly
good news for commercial energy firms. End-users don’t have to file Form TO
and they are relieved from certain recordkeeping requirements for trade
options. Further, end-users’ swap reporting counterparties (formed by
entering into bilateral swaps with other end-users) are no longer required
to report trade options. Also, the CFTC indicated that it will not require
trade options to be subject to position limits in the much-anticipated final
rule on position limits. Finally, the CFTC removed a requirement to file a
notice with its Division of Market Oversight when any market participant’s
aggregate notional value of trade options, in a calendar year, reaches $1
billion.
Unfortunately, it took the CFTC over three years to arrive to this point,
despite repeated filings by various market participants and organizations
that all along argued the very same conclusions the CFTC has reached in this
final rule. In the meantime, commercial market participants spent countless
hours and resources vetting various physically settled transactions such as
tolling agreements, take-or-pay contracts, baseload plus swing load
transactions, natural gas peaking transactions, commercial and industrial
full requirement agreements, seasonal exchange agreements, asset management
agreements, and other similar agreements and transactions, in order to
determine whether they had to be designated as trade options. Also, many
buyers and sellers who disagreed with their counterparties regarding the
appropriate designation of certain transactions, experienced additional
burdens on their commercial, risk, compliance, and legal resources. After
experiencing unnecessary burdens to comply with trade option evaluation and
reporting, market participants will certainly have to spend additional
resources to update their relevant policies, procedures, training, and
contracts documentation in order to implement the final rule. Hopefully, the
regulatory evolution of trade options will be a good teaching moment for
both the CFTC and market participants, and each side will listen to the
other a little more and talk past each other a little less.
The CFTC pointed out in the final rule that the definition of a trade option
is not open to discussion. In other words, trade options are here to stay
and the CFTC is using its exemptive authority to remove some of the
reporting and recordkeeping requirements for some market participants
(end-users) at this time. Swap dealers and major swap participants are still
required to report trade options just as they report swaps. In her
concurring statement to the final rule, CFTC Commissioner Bowen pointed out
that “[t]rade options have been caught in a difficult legal bind. Congress
sought to ensure that people could not evade our swaps regulations. It did
so by both having a very broad definition of a swap, while also limiting
this Commission's authority to exempt swaps by regulation. Fortunately,
however, Congress preserved the Commission's authority to exempt trade
options, which is the authority we are once again using today. Importantly,
this exemption provides additional legal certainty that our interpretations
cannot. But we cannot overrule the Commodity Exchange Act with regulations
and interpretations; we will always be bound by that statute. Therefore, I
want to caution anyone tempted to rely on an interpretation to avoid CFTC
jurisdiction when it comes to options. I fully recognize the difficulty in
distinguishing between different types of physical contracts. If a
particular contract or an element of a contract serves an economic purpose
similar to an option, I believe the best course of action is to exercise
caution and not assume your contract is outside of our jurisdiction based on
an interpretation. While it may seem fine for a person using these contracts
to hope that the interpretation is not called into question, I believe it
would be wise, as a backstop, to make sure it also falls within the trade
option exemption.” At the end of the day, legislative action may be needed
to either clarify or eliminate the very definition of trade option. While
the final rule is an important chapter in the trade option saga, there is no
doubt that we are still far from the final chapter.