Derivatives practice is an area that can be considered exciting by some and is certainly one which is financially rewarding and is developing significantly in Hong Kong and the rest of the world, according to those who practice in the area. “The main reasons for my choice were the range of work on offer and also the opportunity to experience, firsthand, an area of law which is currently undergoing significant changes,” said Raymond Cheng, a newly qualified Hong Kong lawyer who knew straight away that he wanted to join the derivatives practice at Clifford Chance, where he completed his training contract rotating through corporate, litigation, derivatives and emissions trading (a seat completed in London).

Cheng offered his insight into what drove him, and others like him, to become a derivatives lawyer: “Many clients are facing increasing regulatory burdens in the US, EU and elsewhere following the global financial crisis.  For example, the proposed Dodd-Frank Act and the Basel III Accord are expected to have significant impact on many of our clients' derivative businesses globally and we need to be on top of these regulations in order to be able to guide our clients through these new waves of changes.”

Cheng’s training seats at Clifford Chance offered him the opportunity to work on IPOs, assist in arbitration hearings in Hong Kong, offer advice to international banks on derivatives contracts in China and help set up clean development projects, which were then on-sold to the secondary market in Europe. They all assisted to develop useful and transferable skills for clients as a derivatives lawyer, according to him.

Cheng’s current position still offers diverse and challenging tasks, which he and the 14 member Clifford Chance team work on in conjunction with their colleagues in Singapore, Tokyo and China. “On any day, I may be working on structuring a derivative transaction, advising clients on their regulatory and compliance obligations under Hong Kong law or even closing-out derivative trades with an insolvent counterparty,” said Cheng. The diversity is due to the fact that derivatives now play a more significant role in the general financial market, according to Cheng. This also means knowledge from other areas of finance and law is called upon: “In addition to what I would call "traditional" derivatives work, such as structuring swaps or options, we are also often called on to advise our clients on contentious disputes involving derivative contracts.  To be able to do so effectively, we need to have a working knowledge of, and basic grounding in such diverse areas as litigation, insolvency and capital markets,” said Cheng. 

So, you want to become a derivatives lawyer?

Cheng offered his top pieces of advice for those interested in joining a derivatives practice.

Be passionate:
There is no getting around the fact that the hours will be long and a lot of passion and dedication will be required to help get through the difficult times, according to Cheng: “My first advice to other junior lawyers and trainees is to find an area that you are passionate about.  There is no glossing over the fact that the type of work we do often means long hours and tough demands.  If you are thinking of pursuing a career in derivatives law at a major international law firm, ask yourself whether you have a genuine interest in finance and derivative laws and whether you are willing to put in the hours.  If so, I think you can look forward to an opportunity to work on some of the most cutting-edge issues in law and gain an exposure to a broad range of challenging but fascinating work.”

Keep your knowledge fresh on other relevant practice areas:
Derivatives lawyers need to constantly keep abreast of the latest developments in not just finance law, but also contract, tort, insolvency and other areas of law in all the major jurisdictions around the world.   Moreover, derivatives are increasingly in the spotlight before governments, regulators and the general public and we expect there to be significant overhaul to the existing over-the-counter derivative markets and how our clients will conduct their derivative businesses going forward.

Being financially literate helps:
Although lawyers are not generally expected to act as accountants or statisticians, being able to master the numbers well enough to explain them properly to clients is a must. “We deal frequently with not only our client's in-house lawyers but their bankers and traders as well.  It also helps, when explaining to our clients why we have drafted a provision in a certain way, to understand how the underlying deal actually works!” said Cheng.