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| {{eqderivanat|6.2}} | | {{eqdmanual|6.2}} |
| ===The {{eqderivprov|Calculation Period}} that didn’t bark in the night-time===
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| Where, oh where, are the {{eqderivprov|Calculation Period}}s {{eqderivdefs}}? Ok so this is a bit of a trick question. There are ''no'' “{{eqderivprov|Calculation Period}}s” — that is instead defined in the [[2006 ISDA Definitions]]. In the {{eqderivdefs}}, the periods for Equity calculations are handled by the “{{eqderivprov|Valuation Date}}” concept.
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| That in turn determines the “{{eqderivprov|Cash Settlement Payment Date}}” (for cash-settled {{eqderivprov|Equity Swap Transaction}}s) and “{{eqderivprov|Settlement Date}}” (for [[Physical settlement|physically settled]] ones).
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| You may see a {{eqderivprov|Calculation Period}} on the [[Floating leg|Floating]] leg of an [[equity swap]] though - that will be a reference to the [[2006 ISDA Definitions]].
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| ===[[Synthetic prime brokerage]]===
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| The {{eqderivprov|Valuation Date}} comes in handy if you are restriking your {{isdaprov|Transaction}}s periodically, as you are likely to be doing if you are providing [[synthetic prime brokerage]] — being as it is, an undated [[delta-one]] exposure to equities delivered through an equity derivative. Your [[prime broker]] will not want to run indeterminate exposures to shares, even if it is collateralised daily, so restriking the transactions periodically can zero out whatever the residual risk is in the paranoid eyes of your financial controllers.
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| Now interim {{eqderivprov|Valuation Date}}s — which are glorified estimates of the present value of an ongoing position — and the final {{eqderivprov|Valuation Date}} — which is the price at which you definitively close out your position and go “off risk” — have rather different consequences. [[Tax attorney|US Tax attorney]]s, as obsessed as they are with avoiding the suggestion that a swap counterparty is controlling its [[broker]]’s hedge, will seek to avoid any suggestion that the ''final'', scheduled valuation arises from anything quite so mucky as the price at which the broker closes out its hedge. So expect references to [[VWAP]].
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| The same [[tax attorney]] will not be so bothered how you come up with your prices on other valuation dates, seeing as the counterparty is mot going on or off risk.
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| In the [[synthetic prime brokerage]] world, where {{isdaprov|Transaction}}s are callable at will, that ''scheduled'' {{eqderivprov|Termination Date}} is a fairly arbitrary figure plucked out of the air at some point in the distant future, as much as anything else because “{{eqderivprov|Termination Date}}” is a mandatory field in the booking system.
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| Curiously, [[tax attorney]]s are less exercised about the method by which a [[Broker]] values the transaction for an ''optional'' early termination, even though that is the usual method by which a clienbt terminates a synthetic equity swap, which is broadly an undated transaction terminable at the client’s whim.
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| ===[[Bullet swap]]s===
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| Some times you will trade “[[bullet swap|bullet swaps]]” which do not have a {{eqderivprov|Valuation Date}}. Being the tortured language of an ISDA drafting committee, there is no straightforward concept in the definitions of a swap which has no {{eqderivprov|Valuation Date}}s other than the {{eqderivprov|Termination Date}}, so expect wildly ungainly language in confirms to express a fairly simple idea.
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2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™
6.2 in a Nutshell™
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The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. You can even ask questions! Ask about it here.
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6.2 in all its glory
Resources and Navigation
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Overview
Section 6.1. Valuation Time
Section 6.2. Valuation Date
Section 6.3. General Terms Relating to Market Disruption Events
- 6.3(a) Market Disruption Event
- 6.3(b) Trading Disruption
- 6.3(c) Exchange Disruption
- 6.3(d) Early Closure
Section 6.4. Disrupted Day
Section 6.5. Scheduled Valuation Date
Section 6.6. Consequences of Disrupted Days
Section 6.7. Averaging
- 6.7(a). Averaging Date
- 6.7(b). Settlement Price and Final Price
- 6.7(c). Averaging Date Disruption
- 6.7(d). Adjustments of the Exchange-traded Contract
- 6.7(e). Adjustments to Indices (Averaging)
Section 6.8. Futures Price Valuation
- 6.8(a) Valuation Date (Futures Price Valuation)
- 6.8(b) Additional definitions (Futures Price Valuation)
- 6.8(c) Settlement Price and Final Price (Futures Price Valuation)
- 6.8(d) Adjustments of the Exchange-traded Contract (Futures Price Valuation)
- 6.8(e) Non-Commencement or Discontinuance of the Exchange-traded Contract
- 6.8(f) Corrections of the Official Settlement Price
Summary
The Valuation Date concept assumes you have a Transaction that will run to its term. For you cheeky synthetic prime brokerage types who write your Equity Swaps as if they were undated delta-one exposures — which, unless the Master in Charge of Tax is looking, they are — your master confirmation will need to create an extra, bonus, final Valuation Date as of the Optional Early Termination Date, otherwise on closing out a position you might find yourselves harking back to a Valuation Date that happened in that happier, gentler time that was two or three weeks ago.
The Calculation Period that didn’t bark in the night-time
Where, oh where, are the Calculation Periods 2002 ISDA Equity Derivatives Definitions? Ok so this is a bit of a trick question. There are no “Calculation Periods” — that is instead defined in the 2006 ISDA Definitions. In the 2002 ISDA Equity Derivatives Definitions, the periods for Equity calculations are handled by the “Valuation Date” concept.
That in turn determines the “Cash Settlement Payment Date” (for cash-settled Equity Swap Transactions) and “Settlement Date” (for physically settled ones).
You may see a Calculation Period on the Floating leg of an equity swap though - that will be a reference to the 2006 ISDA Definitions.
Some times you will trade “bullet swaps” which do not have a Valuation Date. Being the tortured language of ISDA’s crack drafting squad™, there is no straightforward concept in the definitions of a swap which has no Valuation Dates other than the Termination Date, so expect wildly ungainly language in confirms to express that fairly simple idea.
Premium content
Here the free bit runs out. Subscribers click 👉 here. New readers sign up 👉 here and, for ½ a weekly 🍺 go full ninja about all these juicy topics 👇 |
- The JC’s famous Nutshell™ summary of this clause
- The relevance of this clause to synthetic prime brokerage
See also
References