Template:M gen Equity Derivatives 12.9: Difference between revisions

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===From the User’s Guide===
Section {{eqderivprov|12.9}} has seven elective “{{eqderivprov|Additional Disruption Events}}”. These grew out of consensus market practice after the publication of the 1996 Equity Derivartive Definitions.  
Section {{eqderivprov|12.9}}. {{eqderivprov|Additional Disruption Events}}. The 2002 Definitions introduce a new category of seven elective disruption events entitled “{{eqderivprov|Additional Disruption Events}}”. The {{eqderivprov|Additional Disruption Events}} were included at the request of members who found that in the intervening six years since publication of the 1996 Definitions, market participants had begun to develop their own firm-specific description of additional Disruption events that apply in the case of Disruptions to the parties' hedging arrangements, a change in law, an insolvency filing or a failure to deliver Shares as a result of an illiquid market. Members requested that the most common additional Disruption events be standardized in the 2002 Definitions.


Unlike the consequences related to {{eqderivprov|Extraordinary Events}}, the parties can elect as many {{eqderivprov|Additional Disruption Events}} as are agreed to. The {{eqderivprov|Additional Disruption Events}} are elective, so none of them apply automatically. There may be overlap between {{eqderivprov|Change in Law}} and {{eqderivprov|Hedging Disruption}}. Given that {{eqderivprov|Change in Law}} contains no cure period and {{eqderivprov|Hedging Disruption}} contains a two {{eqderivprov|Scheduled Trading Days}}’ cure period, parties should consider specifying a priority between the two {{eqderivprov|Additional Disruption Events}} in the related {{eqderivprov|Confirmation}}. If parties select more than one {{eqderivprov|Additional Disruption Event}} to apply to their {{eqderivprov|Transaction}}, they should consider whether certain events would constitute more than one {{eqderivprov|Additional Disruption Event}}, and whether the consequences of each {{eqderivprov|Additional Disruption Event}} are different (e.g., {{eqderivprov|Increased Cost of Hedging}} and {{eqderivprov|Increased Cost of Stock Borrow}}). In such cases parties should add a provision to the {{eqderivprov|Confirmation}} that states which provision should be followed if there is a conflict. The only conflict addressed by the 2002 Definitions is between {{eqderivprov|Hedging Disruption}} and {{eqderivprov|Loss of Stock Borrow}}. If both events are specified as applicable in a {{eqderivprov|Confirmation}} and an event occurs that could qualify under either elective, then such event will be treated as a {{eqderivprov|Loss of Stock Borrow}}, pursuant to Section {{eqderivprov|12.9(b)(vii)}}. Lastly, any of the {{eqderivprov|Additional Disruption Events}} can apply to any type of {{eqderivprov|Transaction}}, except that {{eqderivprov|Failure to Deliver}} (discussed below) applies only to {{eqderivprov|Physically-settled Transactions}}.
{{eqderivprov|Additional Disruption Events}} are elective, so don’t apply unless specifically turned on. There are overlaps: {{eqderivprov|Change in Law}} and {{eqderivprov|Hedging Disruption}}, for example.  
 
Given that {{eqderivprov|Change in Law}} contains no cure period and {{eqderivprov|Hedging Disruption}} contains a two {{eqderivprov|Scheduled Trading Days}}’ cure period, parties should consider specifying a priority between the two {{eqderivprov|Additional Disruption Events}} in the related {{eqderivprov|Confirmation}}.
 
{{eqderivprov|Failure to Deliver}} applies only to {{eqderivprov|Physically-settled}} {{eqderivprov|Transactions}}. In the synthetic equity world, one doesn’t ride the physically settled bus, so that is one more reason we don’t let it trouble the scorers.

Revision as of 17:42, 27 March 2020

Section 12.9 has seven elective “Additional Disruption Events”. These grew out of consensus market practice after the publication of the 1996 Equity Derivartive Definitions.

Additional Disruption Events are elective, so don’t apply unless specifically turned on. There are overlaps: Change in Law and Hedging Disruption, for example.

Given that Change in Law contains no cure period and Hedging Disruption contains a two Scheduled Trading Days’ cure period, parties should consider specifying a priority between the two Additional Disruption Events in the related Confirmation.

Failure to Deliver applies only to Physically-settled Transactions. In the synthetic equity world, one doesn’t ride the physically settled bus, so that is one more reason we don’t let it trouble the scorers.

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