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Template:Record amount paid amount ex amount: Difference between revisions
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On one hand, on a natural reading it seems so: {{eqderivprov|Record Amount}} and {{eqderivprov|Ex Amount}} specify an amount by reference to the amount “declared by the {{eqderivprov|Issuer}} to [[holder of record|holders of record]] of a {{eqderivprov|Share}}”, whereas {{eqderivprov|Paid Amount}} references the amount “''paid'' by the {{eqderivprov|Issuer}} during the relevant {{eqderivprov|Dividend Period}} to [[holder of record|holders of record]]”. On the other hand there’s no sensible reason for supposing am {{eqderivprov|Equity Amount Payer}} would want to keep the risk of solvency of an {{isdaprov|Issuer}} if it pays early<ref>or ever, really: that defeats the purpose of an equity derivative</ref> but ''not'' have it if it pays on the payment date. Examination of the world wide web seems to offer little help. | On one hand, on a natural reading it seems so: {{eqderivprov|Record Amount}} and {{eqderivprov|Ex Amount}} specify an amount by reference to the amount “declared by the {{eqderivprov|Issuer}} to [[holder of record|holders of record]] of a {{eqderivprov|Share}}”, whereas {{eqderivprov|Paid Amount}} references the amount “''paid'' by the {{eqderivprov|Issuer}} during the relevant {{eqderivprov|Dividend Period}} to [[holder of record|holders of record]]”. On the other hand there’s no sensible reason for supposing am {{eqderivprov|Equity Amount Payer}} would want to keep the risk of solvency of an {{isdaprov|Issuer}} if it pays early<ref>or ever, really: that defeats the purpose of an equity derivative</ref> but ''not'' have it if it pays on the payment date. Examination of the world wide web seems to offer little help. | ||
Nor does the [[User’s Guide to the 2002 ISDA Equity Derivatives Definitions | Nor does the [[User’s Guide to the 2002 ISDA Equity Derivatives Definitions]]. It suggests, without saying in which cases, that you might need a [[clawback]] right if you don’t want to be on the hook for a {{eqderivprov|Dividend Amount}} declared but not eventually paid by the {{eqderivprov|Issuer}}. But consider this: in what universe would the writer of a derivative referencing an Share, wish to be liable for a dividend declared on but not ultimately paid by the {{eqderivprov|Issuer}}? That would be to do something [[equity derivative]]s are expressly designed not to do. | ||
===[[Dividend clawback]]: if the {{eqderivprov|Issuer}} doesn’t actually pay a declared dividend=== | |||
The [[User’s Guide to the 2002 ISDA Equity Derivatives Definitions|2002 User’s Guide]] wonders aloud whether parties may consider a [[dividend clawback]] provision, to cater for the {{eqderivprov|Equity Amount Payer}} has paid through a {{eqderivprov|Dividend Amount}} under a {{isdaprov|Transaction}} on the {{eqderivprov|Dividend Payment Date}} but the {{eqderivprov|Issuer}} then blows up before it can pay out the corresponding dividend in full<ref>This is a JC bastardisation of typically grim ISDA textical contortion, needless to say.</ref>: | |||
:'''''{{eqderivprov|Dividend Recovery}}''': If the amount an {{eqderivprov|Issuer}} actually pays to {{eqderivprov|Share}}holders of record in respect of a {{eqderivprov|gross cash dividend}} is less than the amount declared (a “'''{{eqderivprov|Dividend Mismatch}}'''”) the {{isdaprov|Calculation Agent}} may calculate a payment under the {{isdaprov|Transaction}} to account for {{eqderivprov|Dividend Mismatch}} and compensate for interest incurred by the party that made the relevant payments. Where the amount actually paid by the {{eqderivprov|Issuer}} to {{eqderivprov|Share}}holders of record for any such dividend is paid or (scheduled) after the {{eqderivprov|Termination Date}}, this provision will still apply even though relevant settlement date has passed. If the {{eqderivprov|Issuer}} subsequently corrects the under-payment, the {{isdaprov|Calculation Agent}} may make a further adjustment.'' | |||
“Parties should consider,” further ruminates the [[User’s Guide to the 2002 ISDA Equity Derivatives Definitions|User’s Guide]], in typically passive-aggressive fashion, “the potential [[credit risk]] created by this provision and may wish to consider whether such amounts are adequately covered under the definition of “{{csaprov|Exposure}}” under any relevant [[credit support document]].” | |||
===House view: S.N.A.F.U.=== | ===House view: S.N.A.F.U.=== | ||
The [[JC]] concludes this is simply a howler in the {{eqdefs}} which ISDA hastily tried to cover up with that clawback malarkey. In any case, to be safe, reference the {{eqderivprov|Paid Amount}}. Consensus amongst market professionals we have consulted is that {{eqderivprov|Paid Amount}} does, as its drafting suggests, depend on the {{eqderivprov|Issuer}} ponying up. That is where you want to be. <br> | The [[JC]] concludes this is simply a howler in the {{eqdefs}} which ISDA hastily tried to cover up with that clawback malarkey. In any case, to be safe, reference the {{eqderivprov|Paid Amount}}. Consensus amongst market professionals we have consulted is that {{eqderivprov|Paid Amount}} does, as its drafting suggests, depend on the {{eqderivprov|Issuer}} ponying up. That is where you want to be. <br> | ||