An important decision related to the trading of bank loans was issued recently by New York State’s highest court. To the relief of the loan trading market, the decision reaffirms market practice surrounding the formation of binding obligations to close a trade.

In Stonehill Capital Management et al v. Bank of the West, the New York Court of Appeals unanimously ruled that when a party enters into an agreement that is “subject to documentation,” the party still has a binding agreement to settle the trade as long as the totality of circumstances indicates that the parties...