Due diligence: Difference between revisions
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===What [[due diligence]] is=== | {{g}} | ||
Due diligence is | ===What [[due diligence]] ''is''=== | ||
[[Due diligence]] is the process of seeking comfort from one’s [[contract|contractual]] service-providing counterparts — especially one’s [[custodian]]s, [[Clearing broker|clearer]]s and [[prime broker]]s — that they have a robust operational setup, staffed with well-motivated and enthusiastic [[subject matter expert]]s and connecting to competent [[sub-custodian]]s, service-provider]]s and [[agent]]s so that, notwithstanding the skillfully negotiated [[indemnities]], [[covenant]]s, [[representation]]s and [[warranty|warranties]] your [[leagle eagles]] have skillfully extracted from them in the [[verbiage]], your counterparties are nonetheless is ''factually'' capable of carrying out their obligations. | |||
[[Due diligence]] thereby gives '''practical comfort''' that the legal obligations are worth the paper they’re written on. | [[Due diligence]] thereby gives '''practical comfort''' that the legal obligations are worth the paper they’re written on. | ||
===What [[due diligence]] is not=== | ''Due diligence'' is about [[fact]]s, not [[law]]. | ||
===What [[due diligence]] is ''not''=== | |||
[[Due diligence]] is ''not'' an exercise in asking your counterparty to explain your legal {{t|contract}} to you. You can read that for yourself or, if you can’t bring yourself to do that,<ref>And who, really, could blame you?</ref> ask your legal eagles to do that for you. Then ''they'' can advise you. But your [[broker]] is ''not'' your legal adviser, is specifically not be regulated to advise you on your contract (and, being the person on the other side of it, inherently [[conflict of interest|conflicted]] in giving you that advice). | |||
Nor is [[due diligence]] a fishing expedition. It is not an excuse for extracting commercially sensitive [[Confidential information - Confi Provision|confidential information]] from your broker or subcustodian, a legal entity who may, when wearing one of its thousand other faces, be your mortal competitor. Don't expect it to hand over all its legal contracts with suppliers to you. | |||
===What [[due diligence]] ''definitely'' is not=== | ===What [[due diligence]] ''definitely'' is not=== | ||
[[Due diligence is never, ever, to be referred to as “[[due dilly]]”. I heard this once from a chap who, to my enduring delight, is still employed in my organisation. Why do I say delight? Because as long as that chap is still here, there is at least one body between me and the wall I will eventually be lined up and shot against. He is my [[silver bullet]]. | |||
Revision as of 15:48, 16 October 2019
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What due diligence is
Due diligence is the process of seeking comfort from one’s contractual service-providing counterparts — especially one’s custodians, clearers and prime brokers — that they have a robust operational setup, staffed with well-motivated and enthusiastic subject matter experts and connecting to competent sub-custodians, service-provider]]s and agents so that, notwithstanding the skillfully negotiated indemnities, covenants, representations and warranties your leagle eagles have skillfully extracted from them in the verbiage, your counterparties are nonetheless is factually capable of carrying out their obligations.
Due diligence thereby gives practical comfort that the legal obligations are worth the paper they’re written on.
Due diligence is about facts, not law.
What due diligence is not
Due diligence is not an exercise in asking your counterparty to explain your legal contract to you. You can read that for yourself or, if you can’t bring yourself to do that,[1] ask your legal eagles to do that for you. Then they can advise you. But your broker is not your legal adviser, is specifically not be regulated to advise you on your contract (and, being the person on the other side of it, inherently conflicted in giving you that advice).
Nor is due diligence a fishing expedition. It is not an excuse for extracting commercially sensitive confidential information from your broker or subcustodian, a legal entity who may, when wearing one of its thousand other faces, be your mortal competitor. Don't expect it to hand over all its legal contracts with suppliers to you.
What due diligence definitely is not
[[Due diligence is never, ever, to be referred to as “due dilly”. I heard this once from a chap who, to my enduring delight, is still employed in my organisation. Why do I say delight? Because as long as that chap is still here, there is at least one body between me and the wall I will eventually be lined up and shot against. He is my silver bullet.
- ↑ And who, really, could blame you?