Template:Calculation agent versus determination agent

Calculation Agent vs. Determining Party

Why: The Equity Derivatives recognise that while most calculations could be performed by whoever is appointed Calculation Agent, determination of a Cancellation Amount is inextricably related to the hedge and — especially where there is a disrupted market – this is best to be calculated by the one whose problem it is to unwind that hedge: namely, the Hedging Party.

In theory (though almost never in practice) the Hedging Party might not be the Calculation Agent.

In theory, too, the Hedging Party might not be named the Determining Party. Which is kind of awkward, since the Cancellation Amount is couched in terms of the cost to the determining Party of unwinding, liquidating or re-establishing its hedge — which it would only do if it was, like, hedging.

Lastly, note that if your investment bank is as left-handedly configured as some the JC has come across, the group entity writing the equity swaps might not be the same as the one doing the physical hedging of those swap obligations (with a back-to-back trade between them, for example), so the Hedging Party/Determining Party might not be either party to the actual ISDA Master Agreement at all.

So confusing.

When: The Determining Party only ever has to determine a Cancellation Amount, Cancellation and Payment or Partial Cancellation and Payment under 12.8, and that will only happen in only when a Transaction terminates following an Extraordinary Event or an Additional Disruption Event.

Enter the lawyers: Nevertheless, this is all the opportunity my brethren in the legal profession need to confect, and spray-hose all over your confirmation, language like “determination or calculation, as the case may be, made (respectively) by the Calculation Agent or Determining Party, as the case may be”.