Market Participants Need Contract Insight Now

It has been a nail-biting 10 days in the world of banking and financial markets.  Absent yesterday’s Credit Suisse announcement, today would have been a very rocky day. Catylex's core inspiration came out of our experience in 2008, where we saw how things played out – both with and without bank rescues. Both cases involved a significant rolling series of fire drills. 

For large systematically important banks like Credit Suisse, many market participants have positions and exposure in the form of derivatives and repos and myriad other contractual arrangements.  

As a market participant starts to determine what scenarios can play out with a distressed counterparty one of the first things you need to do is work out what transactions and other contracts you have with that counterparty.   

Once you know what transactions you have, the next step is to determine what are the relevant provisions of these contracts that could apply or be triggered in these circumstances.  

For example, if you have been trading derivatives with Credit Suisse, you will need to understand what relevant provisions are in the ISDA documents that govern these trades. In particular, you will be wanting to look at provisions such as:

• Ratings downgrade triggers 
• Cure periods
• NAV triggers
• Operational failure, carve outs
  
• Cross-default
• Margin locks and other margin provisions
• Notice period for changing risk limits
• Rights to terminate

The more contracts you have with a distressed counterparty, the longer the time the review is going to take.  Historically this has been a very expensive manual undertaking.  However, under many types of contracts there are tight timing periods for actions to be taken so the time for review is very limited - i.e., you don’t have time. 

In 2008 there was simply not enough time to review all contracts within the relevant timeframes so many institutions had to assume that the sample of contracts they could review was representative of the whole population of contracts (knowing that this was actually not the case and would give rise to much litigation).  In 2008 there was no other way to operate.  

In 2023 there is another way to deal with this situation.  You can use Catylex to review hundreds or thousands of contracts very quickly - Catylex will pull out many of the relevant provisions allowing institutions to plan and execute what they need to do in short order. 

Catylex has thousands of models that have already been trained and can be implemented very quickly.   Clients can quickly start loading documents and review the results.  The time to value is very fast – much faster than organizing lots of people to start reviewing volumes of documents. 

The Catylex team includes experienced banking lawyers and businesspeople who lived through 2008 – one of the drivers for building Catylex came out of not wanting to repeat the contract fire drill experience without having a great tool for contract review.  

Please reach out to any of the Catylex team if you are interested in learning more.  If you need answers within days, we’re ready to deliver.