Clifford Chance

A capital outcome: CoCos can be redeemed

16 December 2015

The Court of Appeal has decided that, on the interpretation of the relevant terms, a bank is entitled to redeem convertible contingent securities if those securities cease to help the bank to pass the Prudential Regulation Authority's stress tests.  In reaching this conclusion, the Court drew heavily on the function of regulatory capital and the changing rules surrounding capital, rejecting the argument that these complex matters were beyond the knowledge of retail investors.  Regulatory capital instruments are for sophisticated investors only, who are presumed to understand the function of the instruments they buy and to be able to correct obvious mistakes in the terms and conditions.

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