Law firm of the year: Davis Polk & Wardwell

Davis Polk & Wardwell's transactional work during 2012 - when it advised on 2,100 offerings, worth $32 billion, or an average of 40 per week - would have been impressive in any year. But as the firm's clients will tell you, 2012 was not any year. When the US Securities and Exchange Commission (SEC) delivered a letter to issuers in April suggesting that certain industry-wide practices were not up to regulatory standards, Davis Polk was summoned to the table by no less than five recipients of the letter to assist with their responses. No other firm can boast that level of involvement in what became the legal story of 2012, and that is part of what makes Davis Polk law firm of the year.

"This really was a huge year in terms of regulatory developments," says Christopher Schell, New York-based partner in the firm's capital markets group. "Not just with the SEC, but with the Financial Industry Regulatory Authority (Finra), as well." Davis Polk's clients are unanimous in how they feel about the firm's work in this area. "At one point, I had to go to Washington for meetings with senior regulators and brought Davis Polk with me. They were indispensable," says one New York-based executive director.

The company's involvement stretched from helping issuers craft disclosures in response to SEC concerns to behind-the-scenes negotiations with regulators. "There was quite a bit of discussion with the SEC before the letter was even made public. We were instrumental in advising some of our key clients on those discussions," says Schell. Davis Polk was also the only firm called upon by the structured products committee of the Securities Industry and Financial Markets Association (Sifma) to craft an industry-wide response. And the firm spent "a very busy spring" advising clients on the complex products bulletin Finra put out in January, according to Schell.

In addition to the welter of regulatory advice - much of which was unique to 2012 - Davis Polk kept up with its bread-and-butter structured products practice. That meant advising the industry's top issuers on offerings of registered and unregistered notes and certificates of deposit (CDs). "The level of the firm is very high," says one client. "Their knowledge of the market, the quickness of their response, their internal expertise - we're not finding that we have to go through 15 different law firms to get advice that relates to the same matter," says another.

The company's enviable client list in 2012 included Citi, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley and Wells Fargo. In addition, it added two new names to its roster last year: Lloyds and Royal Bank of Scotland. And in a year that was mostly bereft of innovative trades, Davis Polk managed to have a hand in some of the more innovative offerings.

Volatility continued its emergence as a discrete asset class on par with fixed income and equities in 2012. Many investors remained hungry for protection in the event of market surprises. The firm advised both JP Morgan and Deutsche on innovative volatility-linked products that pushed the ball forward from previous-generation structures. For JP Morgan, Davis Polk advised on seven deals linked to the bank's proprietary JP Morgan Strategic Volatility Dynamic Index, which, in addition to a long position, tracks a short position on futures contracts on the Vix index, creating the potential for returns even in low-volatility scenarios. The firm also assisted Deutsche with its proprietary ProVol Index, which adjusts between long and short positions in Vix futures contracts based on market indicators developed by the bank.

As Warren Motley, New York-based partner at the law firm, explains: "The problem with initial volatility products is the cost of investing in futures on the Vix. It's an expensive position to hold because there's a lot of negative roll yield in the futures market. The JP Morgan and Deutsche products try to address that problem."

Motley says the legal work involved in advising on the two products was extremely complex, both from a disclosure and a regulatory standpoint. The firm was tasked with turning pages of formulae into SEC-compliant "plain English" disclosure. But Davis Polk has likely grown used to a certain degree of toughness in the work it gets. The firm is a popular port-of-call for their thorniest matters, say banks. "Although we rely on a variety of firms, we regularly turn to Davis Polk for our most difficult work," says one New York-based in-house attorney. "We have found that other firms can't come close to the level of expertise they offer."

In addition to a deep and tightly integrated team stretching across all practice groups - many of whom have spent time in various roles at leading regulatory agencies - the firm boasts a 160-year history of advising banks and financial institutions, which has given them unique insight into their clients. "Our relationship with Davis Polk has been long enough and close enough that they are very good at understanding the internal politics at our bank," says one in-house lawyer. "As a result, they are able to pick up on subtleties other firms cannot."

It is this sensitivity towards clients, as well as their leading role in the year's regulatory developments, that makes Davis Polk the Structured Products law firm of the year.