Template:Extraordinary events capsule: Difference between revisions

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Break these “'''{{eqderivprov|Extraordinary Events}}'''” into four categories:
Break these “'''{{eqderivprov|Extraordinary Events}}'''” into four categories:
*'''[[Corporate action]]s on {{eqderivprov|Issuer}}s''': (generally) benign but unscheduled matters of corporate structure concerning the management of specific underlying {{eqderivprov|Shares}}, that change the economic proposition represented by those {{eqderivprov|Shares}}, and not the [[equity derivative]] contract. So: {{eqderivprov|Merger Event}}s and {{eqderivprov|Tender Offer}}s;
 
*'''[[Index Adjustment Event - Equity Derivatives Provision|Index adjustments]]''': Equivalent measures that relate to an underlying {{eqderivprov|Index}} - collectively {{eqderivprov|Index Adjustment Event}}s. So:
'''Corporate events on Issuers''': {{eqderivprov|Corporate Event}}s are generally benign<ref>“Benign” from the point of view of the target company’s solvency and market prospects; not quite so benign from its  management team’s prospects of ongoing employment.</ref> but not always expected or even wanted adjustments to the corporate structure and management of specific underlying {{eqderivprov|Shares}} — {{eqderivprov|Tender Offer}}s, {{eqderivprov|Merger}}s, management buyouts and events that change the economic proposition represented by those {{eqderivprov|Shares}}, and not the [[equity derivative]] contract. So: {{eqderivprov|Merger Event}}s and {{eqderivprov|Tender Offer}}s;
:*''{{eqderivprov|Index Modification}}'': Changes in the calculation methodology for the {{eqderivprov|Index}}  
 
:*''{{eqderivprov|Index Cancellation}}'': Where {{eqderivprov|Index}}es are discontinued with replacement;
'''Index adjustments''': For {{eqderivprov|Index}} trades, unexpected adjustments and  changes to methodologies and publishing strategies of underlying {{eqderivprov|Index}} (as opposed to changes in the composition of the Index according to its pre-existing rules) — collectively call these “{{eqderivprov|Index Adjustment Event}}s”. So:
:*''{{eqderivprov|Index Disruption}}'': disruption in the calculation and publication of {{eqderivprov|Index}} values;
:'''{{eqderivprov|Index Modification}}''': Changes in the calculation methodology for the {{eqderivprov|Index}}  
*'''Negative events affecting {{eqderivprov|Issuer}}s''': {{eqderivprov|Nationalization}}s, {{eqderivprov|Insolvency}}, {{eqderivprov|Delisting}} of underlying {{eqderivprov|Issuer}}s;
:'''{{eqderivprov|Index Cancellation}}''': Where {{eqderivprov|Index}}es are discontinued with replacement;
*'''{{eqderivprov|Transaction}} disruption''': These “{{eqderivprov|Additional Disruption Events}}often crossover with market- and {{eqderivprov|Issuer}}-dependent events above, but the emphasis here is the direct impact on the parties’ abilities to perform and [[hedge]] the derivative {{eqderivprov|Transaction}} itself. So:
:'''{{eqderivprov|Index Disruption}}''': disruption in the calculation and publication of {{eqderivprov|Index}} values;
:*''The {{eqderivprov|Triple Cocktail}}'': The {{eqderivprov|Triple Cocktail}} of {{eqderivprov|Change in Law}}, {{eqderivprov|Hedging Disruption}} and {{eqderivprov|Increased Cost of Hedging}};
 
:*''Stock borrow events'': Specific issues relating to short-selling ({{eqderivprov|Loss of Stock Borrow}} and {{eqderivprov|Increased Cost of Stock Borrow}}); and  
'''Negative events affecting Issuers''': {{eqderivprov|Nationalization}}s, {{eqderivprov|Insolvency}}, {{eqderivprov|Delisting}} of underlying {{eqderivprov|Issuer}}s;
*''Random ones that aren’t needed or used'': Two random ones that don’t brilliantly fit with this theory, and which people tend to disapply — possibly for that exact reason, but they are fairly well covered by the {{eqderivprov|Triple Cocktail}} anyway — {{eqderivprov|Failure to Deliver}} under the {{eqderivprov|Transaction}} on account of illiquidity and, even more randomly, {{eqderivprov|Insolvency Filing}}<ref>especially since there is already an “{{eqderivprov|Insolvency}}” event covering most of this). <br>
 
'''{{eqderivprov|Additional Disruption Events}}''': Events which directly impair performance and risk management of the {{eqderivprov|Transaction}} itself. These often cross over with market- and {{eqderivprov|Issuer}}-dependent events above, but the emphasis here is their direct impact on the parties’ abilities to perform and [[hedge]] the derivative {{eqderivprov|Transaction}} itself. So:
:'''The {{eqderivprov|Triple Cocktail}}''': The {{eqderivprov|Triple Cocktail}} of {{eqderivprov|Change in Law}}, {{eqderivprov|Hedging Disruption}} and {{eqderivprov|Increased Cost of Hedging}};
:'''[[Stock borrow]] events''': Specific issues relating to [[short-selling]] ({{eqderivprov|Loss of Stock Borrow}} and {{eqderivprov|Increased Cost of Stock Borrow}}); and  
:'''Random ones that aren’t needed or used''': Two random ones that don’t brilliantly fit with this theory, and which people tend to disapply — possibly for that exact reason, but they are fairly well covered by the {{eqderivprov|Triple Cocktail}} anyway — {{eqderivprov|Failure to Deliver}} under the {{eqderivprov|Transaction}} on account of illiquidity and, even more randomly, {{eqderivprov|Insolvency Filing}}<ref>especially since there is already an “{{eqderivprov|Insolvency}}” event covering most of this).</ref>. <br>

Latest revision as of 05:07, 5 August 2023

Break these “Extraordinary Events” into four categories:

Corporate events on Issuers: Corporate Events are generally benign[1] but not always expected or even wanted adjustments to the corporate structure and management of specific underlying SharesTender Offers, Mergers, management buyouts and events that change the economic proposition represented by those Shares, and not the equity derivative contract. So: Merger Events and Tender Offers;

Index adjustments: For Index trades, unexpected adjustments and changes to methodologies and publishing strategies of underlying Index (as opposed to changes in the composition of the Index according to its pre-existing rules) — collectively call these “Index Adjustment Events”. So:

Index Modification: Changes in the calculation methodology for the Index
Index Cancellation: Where Indexes are discontinued with replacement;
Index Disruption: disruption in the calculation and publication of Index values;

Negative events affecting Issuers: Nationalizations, Insolvency, Delisting of underlying Issuers;

Additional Disruption Events: Events which directly impair performance and risk management of the Transaction itself. These often cross over with market- and Issuer-dependent events above, but the emphasis here is their direct impact on the parties’ abilities to perform and hedge the derivative Transaction itself. So:

The Triple Cocktail: The Triple Cocktail of Change in Law, Hedging Disruption and Increased Cost of Hedging;
Stock borrow events: Specific issues relating to short-selling (Loss of Stock Borrow and Increased Cost of Stock Borrow); and
Random ones that aren’t needed or used: Two random ones that don’t brilliantly fit with this theory, and which people tend to disapply — possibly for that exact reason, but they are fairly well covered by the Triple Cocktail anyway — Failure to Deliver under the Transaction on account of illiquidity and, even more randomly, Insolvency Filing[2].
  1. “Benign” from the point of view of the target company’s solvency and market prospects; not quite so benign from its management team’s prospects of ongoing employment.
  2. especially since there is already an “Insolvency” event covering most of this).