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==={{eqderivprov|Market Disruption Event}}s vs {{eqderivprov|Additional Disruption Event}}s showdown=== | ==={{eqderivprov|Market Disruption Event}}s vs {{eqderivprov|Additional Disruption Event}}s showdown=== | ||
In a {{nutshell}}: | In a {{nutshell}}: | ||
*'''{{eqderivprov|Market Disruption Event}}s''' handle difficulties in valuing ongoing {{eqderivprov|Transaction}}s in a disrupted market — where the parties are happy to carry on with the position, but their practical means of [[Mark-to-market|marking-to-market]] (and therefore [[Margin|margining]]) their exposures under the {{eqderivprov|Transaction}}s is hampered because of market dislocation; | *'''{{eqderivprov|Market Disruption Event}}s''' (Section {{eqderivprov|6.3}}) handle difficulties in valuing ongoing {{eqderivprov|Transaction}}s in a disrupted market — where the parties are happy to carry on with the position, but their practical means of [[Mark-to-market|marking-to-market]] (and therefore [[Margin|margining]]) their exposures under the {{eqderivprov|Transaction}}s is hampered because of market dislocation; | ||
*{{eqderivprov|Additional Disruption Event}}s handle your rights to ''terminate'' {{eqderivprov|Transaction}}s, usually because | *'''{{eqderivprov|Additional Disruption Event}}s''' (Section {{eqderivprov|12.9}}) handle your rights to early-''terminate'' {{eqderivprov|Transaction}}s, usually because their ability to properly risk-manage their positions — i.e., ''[[hedge]]'' — is undermined by the market dislocation. | ||
So the two are independent. | So the two are independent: one is where you want to carry on; one where you don’t. So you don't have to wait for a period of {{eqderivprov|Exchange Disruption}} before invoking a {{eqderivprov|Hedging Disruption}}, and conversely you could — in theory at any rate — designate an {{eqderivprov|Exchange Disruption}} even if there were no {{eqderivprov|Hedging Disruption}} in existence. | ||
Now in point of fact, an {{eqderivprov|Exchange Disruption}} usually will count as a {{eqderivprov|Hedging Disruption}} — especially a long one — which might be why the {{eqderivprov|Consequences of Disrupted Days}} wording in Section {{eqderivprov|6.5}} seems to run out of enthusiasm for its own existence, as if {{icds}} suddenly realised the whole world is futile and threw in the towel. After all, if there have been eight straight {{eqderivprov|Disrupted Day}}s, the likelihood that one or other party hasn’t canned the {{eqderivprov|Transaction}} on the grounds of {{eqderivprov|Hedging Disruption}} must be pretty low. <br> | |||
Revision as of 09:59, 27 March 2020
Market Disruption Events vs Additional Disruption Events showdown
In a Nutshell™:
- Market Disruption Events (Section 6.3) handle difficulties in valuing ongoing Transactions in a disrupted market — where the parties are happy to carry on with the position, but their practical means of marking-to-market (and therefore margining) their exposures under the Transactions is hampered because of market dislocation;
- Additional Disruption Events (Section 12.9) handle your rights to early-terminate Transactions, usually because their ability to properly risk-manage their positions — i.e., hedge — is undermined by the market dislocation.
So the two are independent: one is where you want to carry on; one where you don’t. So you don't have to wait for a period of Exchange Disruption before invoking a Hedging Disruption, and conversely you could — in theory at any rate — designate an Exchange Disruption even if there were no Hedging Disruption in existence.
Now in point of fact, an Exchange Disruption usually will count as a Hedging Disruption — especially a long one — which might be why the Consequences of Disrupted Days wording in Section 6.5 seems to run out of enthusiasm for its own existence, as if ISDA’s crack drafting squad™ suddenly realised the whole world is futile and threw in the towel. After all, if there have been eight straight Disrupted Days, the likelihood that one or other party hasn’t canned the Transaction on the grounds of Hedging Disruption must be pretty low.