Derivatives Strip


Transactions involving derivatives and structured finance can be complex and often require the specialized knowledge of experts deeply familiar with the products and markets in which the products trade. Compass Lexecon economists offer that in-depth familiarity, knowledge and experience. Our expertise involving derivatives, structured finance and related financial instruments encompasses litigation, consulting and regulatory compliance. 

With a combination of academic and industry expertise, we have been involved in cases pertaining to the operation and structure of the markets in which derivatives and structured products are traded, the valuation of financial instruments, disputes over the rights of different classes of securities holders and derivatives counterparties, disputes concerning credit assessments, cash flow waterfall modeling, and analyzing complex structured financial instruments.

Our expertise involving derivatives and structured finance also includes assessments and analyses of how different market participants use derivatives and structured financing techniques. Clients have engaged Compass Lexecon in litigation and regulatory investigations involving internal controls and risk management processes related to the use of derivatives and structured finance. In addition, we have performed analyses of firms’ derivatives and structured finance activities involving hedging effectiveness, economic substance, tax, accounting, disclosure and regulatory compliance.

Our vast warehouse of experience with – and knowledge of – products and markets, along with our economic and accounting expertise, enables us to uniquely address problems in this area. We have deep familiarity with derivatives and structured products based on credit and interest-rate markets, foreign exchange, commodities, equities and insurance-linked derivatives and securities. We bring our interdisciplinary skills to bear on disputes concerning any of these products.

Compass Lexecon has experience with a number of derivatives product types and structured financing vehicles, including:

• Futures, forwards, options and swaps

• Exotic and compound options

• Collateralized debt obligations (CDOs), synthetics, and structured notes

• Structured credit, correlation, and relative-value trading practices

• Mortgage-backed securities ("MBS")

• Asset-backed securities ("ABS")Insurance-linked securities and catastrophe (“cat”) bonds

• Special purpose entities/vehicles ("SPEs", "SPVs")

• Asset-backed commercial paper programs and Structured Investment Vehicles ("SIVs")

• Auction rate securities (ARS) and contingent liquidity instruments

• Financial guaranties and monoline bond insurance

• Structured insurance and alternative risk transfer (e.g. buyouts, runoff solutions, finite risk and finite reinsurance, captives, protected cell companies, dual-trigger insurance, multiline integrated cover)

• Bulk annuity transactions, longevity/mortality trades, bank- and company- owned life portfolios ("BOLI" and "COLI"), and structured settlements

• Trust-issued securities (e.g., trust-preferred stock and trust-issued contingent capital)

We offer expertise in the following areas:

• Financial instrument valuation

• Financial product designAssessments of the strategic uses of derivatives and structured finance by dealers, end users and other market participants

• Common market practices and trading conventions

• Cash flow waterfall modeling for structured product

• Risk management processes

• Market and credit risk measurement

• Evaluations of hedging effectiveness

• Derivatives clearing and settlement

• Analysis of the design and economic substance of financial products and structures

• Accounting, tax and disclosures issues

• Regulatory compliance