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 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; | |||
: | |||
: | '''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 Modification}}''': Changes in the calculation methodology for the {{eqderivprov|Index}} | ||
:'''{{eqderivprov|Index Cancellation}}''': Where {{eqderivprov|Index}}es are discontinued with replacement; | |||
:'''{{eqderivprov|Index Disruption}}''': disruption in the calculation and publication of {{eqderivprov|Index}} values; | |||
'''Negative events affecting Issuers''': {{eqderivprov|Nationalization}}s, {{eqderivprov|Insolvency}}, {{eqderivprov|Delisting}} of underlying {{eqderivprov|Issuer}}s; | |||
'''{{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 Shares — Tender 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].
- ↑ “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.
- ↑ especially since there is already an “Insolvency” event covering most of this).