The Law on Financial Derivatives, Alastair Hudson, Sweet & Maxwell £75

Alastair Hudson is a barrister and a lecturer in law at King's College, London, and has worked as an in-house derivatives lawyer and as a senior financial analyst. He is therefore ideally qualified to write a book aimed at providing “the first comprehensive guide for the lawyer (and non-lawyer) to the legal complexities of the [over-the-counter] derivatives market and to understand the structure of the products”.

The book is split into six parts: the products; the markets and their documentation; the legal issues, taxation, credit risk and collateral; the regulation of the derivatives markets; appendices containing some standard and non-standard market documentation; and a short glossary.

It is written in a refreshingly open style and is reasonably informative. It covers most of the issues you might come across, although most are discussed generally rather than in depth as this is an introductory work.

There are a few criticisms. There is a significant amount of repetition, which becomes distracting when reading the book from cover to cover. On the other hand, if you are researching a single issue, then the fact that the discussion is often self-contained is a bonus.

Less easy to justify are the inconsistencies between the repetitions: for example, over the course of 50 pages, the risk Hudson perceives that the derivatives markets constitute to the financial system falls from $14 trillion to $7 trillion. More careful editing would also be beneficial, since there are a number of typographical errors.

On a more substantive note, the discussion of the products would have benefited from diagrams to make the structures clearer. The discussion of the documentation used in the markets is based on that published by the International Swaps and Derivatives Association (ISDA). However, it is slightly confusing in certain respects – for example, it refers to transactions being “voidable” rather than being “terminable”, and uses the term “cross default” in a sense different from the one it usually bears under the ISDA document. Similarly, a clause relating to an issue (collateral) is inserted without any discussion of the issue itself.

However, these criticisms are minor. The Law on Financial Derivatives is a useful starting point for anyone becoming involved with derivatives, although it is probably more useful to lawyers than bankers or economists. It is also useful as a quick reference point for certain areas of interest.