By Laurence Beckler,
writing for Hedge Fund Association
Third party vendors typically provide products and services that enable an investment firm to plot a trading strategy and conduct daily operations. Typical engagements include, but are not limited to subscription agreements, trading and risk management systems, software licenses, and risk management tools. The contracts that govern the terms and conditions of these transactions are not particularly sexy or exciting, but potential land mines within the documents can trap unsuspecting firms by locking them into unfavorable terms.
This article hopes to inform and educate a consumer of vendor services of thirteen common traps that may lock an investment firm into an unfavorable legal position.
Top Tips
- Automatic Renewal – Delete language that obligates a firm to additional annual terms
- Fee Increases – Retain the right to negotiate fees in the future
- Indemnity – Beware patent trolls and control the defense of a third party claim
- Limitation of Liability – Isolate liability to particular portfolios; Increase the cap on direct damages
- Termination – Try to include “termination for convenience” language if possible
- Liquidated Damages – Never agree to damages in advance
- Intellectual Property – Fight for the right to (i) distribute output and (ii) own customized deliverables
- Representations & Warranties – Make the vendor stand behind its products and services
- Confidentiality – Protect sensitive, non public information
- Publicity – No one needs to know which vendors the firm has chosen for services
- Barring a Claim – Don’t accept a private statute of limitation for claims against a vendor
- Governing Law & Venue – Don’t agree to the governing law and venue of a far flung region
- Assignment – Require consent before the vendor can transfer its obligations
Topics
Automatic Renewal
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