Derivatives — capacity and authority

It is not only banks and financial institutions that enter into derivative transactions and when other types of entities seek to enter into derivative transactions this raises the issue of the relevant parties’ capacity and authority to do so. The legal issues relating to capacity and authority are complex and require careful consideration.

This guidance note explains the following:

• • the key issues to note when considering an entity’s capacity to enter into a derivatives transaction;
• • the key points to consider when looking at a signatory’s authority to sign derivatives documentation; and
• • issues surrounding the most common types of counterparty where capacity and authority may be an issue.

The guidance notes also considers some case law where capacity was an issue in relation to entry into derivative contracts.

See Derivatives — capacity and authority.