Centre for Financial & Management Studies (CeFiMS) - University of London

Legal Aspects of International Finance [FFL106]

Introduction

This course covers the legal aspects that complement the financial courses Finance in the Global Market and Banking and the Capital Markets. The teaching is based on English law and makes reference to the law of other jurisdictions where this is relevant. You will be shown how contractual principles are applied to commercial fundraising transactions and how to differentiate between legal principles and the market practices that shape these transactions.

Aims & Objectives

When you have completed the study of this course and its readings you will be able to:

• Discuss the different types of international credit available and the international trade in securities and their settlement systems

• Understand the structure of primary and secondary capital markets and the legal aspects and terms of international bonds

• Examine the objectives, economic functions and commercial justification of financial derivatives

• Have an understanding of how the syndication process works and how syndicated loans agreements are constructed and funded

• Explain the development of payment systems and how they work and how securities settlement systems operate and the risks involved

• Define financial collateral

• Discuss project finance as a financial and legal technique and discuss available risk management techniques

• Have an understanding of the legal issues involved when lending to a 'sovereign'

• Discuss the choice of governing law and the choice of jurisdiction by concerning parties

Resources

Students receive a looseleaf binder containing eight ‘course units’; these texts are carefully structured to provide the main teaching and are equivalent to traditional course lectures, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the further assigned readings. Two assignments (to be marked by your CeFiMS tutors), and a specimen examination paper are also included within the student pack, along with the following:

Textbook:

Philip R Wood International Loans Bonds and Securities Regulation Sweet and Mazwell Ltd, 1995 ISBN 0421543108

Scott's International Finance, Transactions, Policy and Regulations Twelfth Edition, University Casebook series, 2005 ISBN 1587788543

Readings:

A compilation of further readings: recently published articles or seminal writings which augment and illustrate the main text.

Course Timetable:

This shows the linkage between the various components of the course and indicates the schedule for reading the texts, submitting assignments, etc.

Course Content

Unit 1: Introduction to the law of International Finance

This first unit is intended to serve as an introduction to the topics you will study in the rest of the course. This unit examines the concept of jurisdiction and the need for international legal principles, and it also looks at various types of international payments and payment systems. In studying it, you will learn about different types of international credit that are available and about the international trade in securities and their settlement systems, and you should be well prepared for studying the following units, where all these issues are examined in detail.

Unit 2: Legal Aspects of International Debt Securities

This unit outlines and discusses the structure of primary and secondary capital markets, to examine the main legal aspects and terms of international bonds and outline and discuss the techniques, parties, documentation, marketing and distribution of bonds to international investors.

Unit 3: Legal Aspects of Financial Derivatives

Key aspects of the law relating to financial derivatives are presented and the various documents involved in financial derivatives transactions are discussed in this unit. The aim is to enable you to understand the objectives, economic functions and commercial justifications of financial derivatives by examining the most significant legal risks associated with financial derivatives and outlining the basic techniques for managing these risks.

Unit 4: Eurodollar Deposits and Syndicated Loans

This unit looks at syndicated loans. These are a common means for governments and corporate borrowers to raise large sums in the financial market. The unit starts on a historical note by examining the origins of the Eurodollar market, and it then outlines some of the main principles on which syndicated lending takes place, including the way in which syndicated loans are funded. A lengthy section is then devoted to an examination of a typical loan agreement, explaining the mechanics of a loan agreement and the significance of the main clauses. Because syndicated loans frequently take place in an international context, the unit goes on to deal with the various cross-border legal issues that arise, describing the potential impact of different legal systems and the significance of the governing law.

Unit 5: Payment and Securities Settlement Systems

This unit looks first at payment systems, including aspects relevant to foreign exchange transactions. (Given the main thrust of this course, the unit will focus principally on what are called ‘large value payment systems’ rather than systems for making payments in the retail market.) It will then look at securities settlement systems. In practice these are closely bound up with payment systems, since one ‘leg’ of the settlement of a securities transaction will generally involve a payment being made. (Many securities settlement systems now have payment systems ‘embedded’ within them.) The unit will go on to look at the main issues raised by the use of intermediaries to hold securities, since this practice is now very much bound up with the way in which securities settlement systems operate. You will conclude your study of this unit by examining the important role played by financial collateral in relation to payment and securities settlement systems, and steps taken to improve and clarify the legal position in relation to such collateral.

Unit 6: Project Finance

This unit provides an overview of project finance as a financial and legal technique and to describe and discuss the risks that a lender may assume in financing projects, and the risk management techniques available to him/her and their lawyers. The unit will also outline and discuss the main documents, transactions and parties involved in international project financings and introduce, outline and discuss the special legal and regulatory issues raised in financing international projects and investments.

Unit 7: Legal Issues of Sovereign Debt

This unit deals with various issues that arise when lending to a ‘sovereign’ – that is, a state, or some manifestation of a state (such as a ministry) or state-owned or state-controlled organisation. In it you will look first at the difficulties that stem from theories of immunity, such as the ability of a state to say that it cannot be sued and that its assets cannot be seized to satisfy its debts. You will then study an examination of the position in the UK and US, where the question of sovereign immunity is governed by statute. Finally, you will consider what happens when a state is unable to service its debt and what steps are open to creditors in such a situation.

Unit 8: Conflict of Laws and International Finance

Every legal issue under a financial contract must be determined in accordance with a system of law and litigated in court located somewhere regardless of whether it involves parties in different countries or within a single location. The question of which law applies and which law decides in an international financial contract is the subject of the conflict of laws (private international law), which provides a methodology and specific rules to decide the legal system with which an international loan or securities offering or international derivative transaction is most closely connected to. In this final unit of the course, you will study the choice of governing law and the choice of jurisdiction by the parties concerned.

Tuition & Assessment

One two-hour examination and one assessed piece of written coursework in each module. Each course module will count for 10% of the total mark. Of this 10%, the examination will count for 70% and the coursework for 30%.