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 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].
  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).
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