Template:M summ Equity Derivatives 6.3(c): Difference between revisions

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See {{eqderivprov|Market Disruption Event}}, for which this  {{eqderivprov|Exchange Disruption}} provision is relevant.  
[[6.3(c) - Equity Derivatives Provision|See]] {{eqderivprov|Market Disruption Event}}, for which this  {{eqderivprov|Exchange Disruption}} provision is relevant.  


Where your trade is an {{eqderivprov|Index Transaction}}, or an {{eqderivprov|Index Basket Transaction}}, the disruption relates to transactions in the underlying {{eqderivprov|Shares}} - because the {{eqderivprov|Index}} doesn’t exist per se as an investable stock.
Where your trade is an {{eqderivprov|Index Transaction}}, or an {{eqderivprov|Index Basket Transaction}}, the disruption relates to transactions in the underlying {{eqderivprov|Shares}} - because the {{eqderivprov|Index}} doesn’t exist per se as an investable stock.


There are, however, separate disruption events relating to change, cancellation or non-publication of Indices.
There are, however, separate disruption events relating to change, cancellation or non-publication of Indices.
===What’s going on here===
Remember the underlying vibe here: this is meant to save the {{eqderivprov|Hedging Party}}’s bacon if for some reason it can’t ''actually'' hedge its index exposure. One can hedge index exposure in multiple ways: through a total return swap, by buying futures on the index, or by trading the physical stocks underlying the index, or a combination of the above. Thus, the language is nice and loosey-goosey, allowing the flexibility to the Calculation Agent however it elects to hedge, and so contemplates a disruption whether it  is because there is no market in the constituent components ''or'' index futures.
But this provides some rather odd optionality. It might be that some of the index component {{eqderivprov|Shares}} are disrupted, but, say, [[futures]] in the index are not, and the {{eqderivprov|Calculation Agent}} ''can'' in fact fully hedge its exposure, but it could technically invoke an {{eqderivprov|Index Disruption}} anyway. At times of maximum dislocation, published index values don’t always fabulously represent the value of their constituents, especially where those constituents are connected with countries which unexpectedly invade Ukraine. This can lead to frantic conversations between counterparties to Index Swaps.

Latest revision as of 00:34, 7 August 2023

See Market Disruption Event, for which this Exchange Disruption provision is relevant.

Where your trade is an Index Transaction, or an Index Basket Transaction, the disruption relates to transactions in the underlying Shares - because the Index doesn’t exist per se as an investable stock.

There are, however, separate disruption events relating to change, cancellation or non-publication of Indices.

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