The overturning of a former HSBC executive’s fraud conviction in July could indicate that dealers do not owe fiduciary duties to their counterparties when pre-hedging large transactions, according to lawyers.
Bracewell’s Charles Mills told Risk.net the court ruling throws a wrench in the discussion around whether dealers have fiduciary duty with an institutional counterparty, and when the dealer’s use of a counterparty’s non-public information about an impending trade to pre-hedge its financial risk constitutes misappropriation.
“In swaps markets, if one big energy company is going to do a swap against another one, they are pure counterparties, they’re not acting for each other. When you get into this area with professional dealers, depending on the circumstances of the trade and services provided, I think it can be less clear,” Mills said.
