In what can be seen as a land mark ruling, on March 23, the German High court gave a ruling against one of the leading German Banks, The Deutsch Bank (DB). The ruling is in connection with a derivatives trade that the Bank has supposedly sold to a paper product manufactures. DB sold an (OTC) Over The Counter, Derivative instrument to the paper supplier to protect its Interest Rate Risk exposure.
However, the bank has as the hedge provider, mislead the hedge seeker. Furthermore the bank sold an instrument referred to as an Interest Rate Swap (IRS) that is skewed toward the bank.
Having reviewed the merits and demerits of the details the judge gave a ruling that the bank failed to act in the best interest of the client as there is clear evidence of misleading and selling the wrong product and this is a clear act of conflict of interest.
Against this background, the Ceylon Petroleum Corporation (CPC) must pursue similar counter litigation against DB for it’s role in selling a wrong derivatives instrument and misleading the Finance Manager of the CPC Lalith Karunarathna and misusing soft dollars to lure the CPC to buy a wrong Derivatives Instrument.
The odds of winning is in favour of the CPC.
Upul Arunajith
A Sri Lankan-Canadian based
derivates specialist |
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