Law Commons^™

This article reviews Over-the-Counter Derivative Products: A Guide to Business and Legal Risk Management and Documentation, by Robert M. McLaughlin (McGraw-Hill 1999) Assuming the role of apologist, Robert McLaughlin's work provides a comprehensive justification for, and defense of, the over-the-counter (“OTC”) derivatives market.

Here the Author looks at some of the potential legal risk factors for a lender in taking a dual role with the same customer with respect to loans and over the counter derivative transactions. The principal risk, says the author, is the rejection of a bank's claim for damages in bankruptcy upon the termination of over the counter derivative transactions entered into with the now bankrupt borrower. This is because the damages with respect to the derivative transactions may be characterized as unmatured interest which may be rejected by bankruptcy court. Although such a characterization was rejected by the courts …