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| But as for the very good question ''why'' would ''any'' [[equity derivative]] purport to pay out a {{eqderivprov|Dividend Amount}} ''before'' the actual real-world payment date for the Dividend it is synthetically replicating? This is a question only {{icds}} would be placed to answer, and they’re not talking. | | But as for the very good question ''why'' would ''any'' [[equity derivative]] purport to pay out a {{eqderivprov|Dividend Amount}} ''before'' the actual real-world payment date for the Dividend it is synthetically replicating? This is a question only {{icds}} would be placed to answer, and they’re not talking. |
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| ===[[Dividend clawback]]: if the {{eqderivprov|Issuer}} doesn’t actually pay a declared dividend===
| | {{dividend clawback}} |
| 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}}<ref>This is a JC bastardisation of typically grim ISDA textical contortion, needless to say.</ref>:
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| :'''''{{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.''
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| “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]].”
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| But on what planet would an {{eqderivprov|Equity Amount Payer}} want to be liable for a [[dividend]] ''declared'' but not ultimately ''paid'' by the {{eqderivprov|Issuer}}? And ''why''?That would be to do something [[equity derivative]]s are expressly designed not to do.
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| ===House view: S.N.A.F.U.===
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| 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}}, with an amendment to cover [[ex date]]s occurring on or before the trade date, and [[dividend payment date]]s occurring after the trade date.<ref>Good news! The [[JC]] has had a go for you. See {{eqderivprov|Paid Amount}} for more.</ref> In any case, consensus amongst market professionals we have consulted is that {{eqderivprov|Paid Amount}} does, as its drafting suggests, depend on the {{eqderivprov|Issuer}} ponying up, so no need for that clawback language. That is where you want to be. <br>
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