Arbitration in Derivatives Contracts

Abstract

In recent years, the International Swaps and Derivatives Association (ISDA) has increasingly facilitated the use of arbitration as a means of resolving disputes arising out of derivatives transactions. Although the financial services industry is said to have traditionally preferred court-based dispute resolution, a number of factors suggest that market participants ought to consider the particular advantages of arbitration for such disputes. In particular, factors such as the ability of arbitration to mitigate enforcement risks in the absence of the mutual recognition of judgments and to deal with competing regulatory standards both in European and international derivatives suggest that arbitration should play an important role in the resolution of such disputes. This article reviews the history of arbitration in derivatives disputes and considers the recent moves by ISDA to facilitate the use of arbitration as a means of dispute resolution. It also considers the various options now available in this regard to market participants who seek to use ISDA standard form documentation, and the factors affecting the use of arbitration as a dispute resolution mechanism. It concludes that more research and data is required to monitor the use of arbitration in this area. Arbitration – arbitral rules and institutions – ISDA – Derivatives – financial services – arbitral award, recognition and enforcement – enforcement – choice of law