Template:M summ Equity Derivatives 6.3(c)

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.

What’s going on here

Remember the underlying vibe here: this is meant to save the 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 Shares are disrupted, but, say, futures in the index are not, and the Calculation Agent can in fact fully hedge its exposure, but it could technically invoke an 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.