International Commercial Arbitration and Over-the-Counter Derivatives

Abstract

Derivatives are complex financial contracts widely used in today’s securities and commodities markets. Alongside promising speculative gains, they allow exporters, importers, lenders, borrowers and other commercial actors to hedge a range of risks they face in the course of their day-to-day operations. Equally, international commercial arbitration has become a preferred method of dispute resolution among legal entities and businessmen involved in international trade and commerce. Although being present in on-exchange rules of derivatives trading, arbitration clauses have been in fact neglected by derivative traders for decades. The article argues that this tendency has changed. Derivative traders embraced arbitration to resolve the disputes taking place in the interbank market as well as those occurring between traders and their clients. To justify that claim, the article considers recommendations published by International Swaps and Derivatives Association (ISDA), a private industry organization and a driving force in derivative markets. In addition to harmonization instruments published by ISDA, we also pay attention to standard master agreements proposed by European Banking Federation (EBF). The paper dwells upon a variety of arbitration clauses promoted by ISDA and EBF to maintain that arbitration currently has matched the status that litigation had over the years. The paper also considers the sanctions-related aspects of dispute resolution domain. It argues that arbitration will remain preferred method of dispute resolution despite the introduction of massive sanctions against the Russian Federation.