For the first time after its 2011 Spread Ladder Swap Judgment (BGH 22.3.2011- XI ZR 316/13), the banking division of the German Supreme Court has recently (BGH 20.1.2015 – XI ZR 316/13) dealt with the disclosure duties of banks in connection with derivative products. The initial negative market value is the core issue of the judgment, which clarifies important questions that had been left open by the Spread Ladder Swap Judgment.

Since the 2011 Spread Ladder Swap Judgment, German and Austrian banks have faced considerable legal uncertainty as to their disclosure duties. In this judgment, the Supreme Court surprisingly enacted a duty on the part of banks to disclose a derivative product’s initial negative market value as an indicator of a significant conflict of interest on the bank’s side. That judgement left many urgent questions unanswered and was heavily debated among legal scholars and practitioners…

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