Template:M comp disc Equity Derivatives 12.9(a)(viii) and 12.9(b)(v)

Section 12.9. Additional Disruption Events

Section 12.9(a): The actual Additional Disruption Events

12.9(a)(i) Additional Disruption Event

12.9(a)(ii) Change in Law

12.9(a)(iii) Failure to Deliver

12.9(a)(iv) Insolvency Filing

12.9(a)(v) Hedging Disruption

12.9(a)(vi) Increased Cost of Hedging

12.9(a)(vii) Loss of Stock Borrow

12.9(a)(viii) Increased Cost of Stock Borrow

Section 12.9(a): Other definitions relating to Additional Disruption Events

12.9(a)(ix) Hedging Party

12.9(a)(x) Hedging Shares

12.9(a)(xi) Lending Party

12.9(a)(xii) Non-Hedging Party

12.9(a)(xiii) Maximum Stock Loan Rate

12.9(a)(xiv) Initial Stock Loan Rate

12.9(a)(xv) Price Adjustment

12.9(b) Consequences of an Additional Disruption Event

12.9(b)(i) Consequences of Change in Law or Insolvency Filing

12.9(b)(ii) Consequences of Failure to Deliver

12.9(b)(iii) Consequences of Hedging Disruption

12.9(b)(iv) Consequences of Loss of Stock Borrow

12.9(b)(v) Consequences of Increased Cost of Stock Borrow

12.9(b)(vi) Consequences of Increased Cost of Hedging

12.9(b)(vii) Consequences of Hedging Disruption and Loss of Stock Borrow

12.9(b)(viii) Shares provided by the Non-Hedging Party

12.9(b)(ix) Cancellation Amount payable by one party to the other

Comparing Loss of Stock Borrow and Increased Cost of Stock Borrow: There is a logical hand-off and interaction between Loss of Stock Borrow with Increased Cost of Stock Borrow:

• Under a Loss of Stock Borrow the Non-Hedging Party has a bit less flexibility in what it does: it must pony up (or procure) a stock borrow within 2 Scheduled Trading Days itself, or Hedging Party can terminate outright. Under Increased Cost of Stock Borrow, the worst that can happen is the trade is repriced to take in the higher rate. So ICOSB is the “gentler” provision from the Non-Hedging Party’s perspective.
• If the cost of a stock borrow exceeds the Maximum Stock Loan Rate it is deemed to be (as good as) impossible to borrow stock, so it is treated as a Loss of Stock Borrow, not merely an Increased Cost of Stock Borrow.
• If a counterparty wants to apply Increased Cost of Stock Borrow whatever the cost of an available bid — and given that it can pass the cost on, a synthetic prime broker might be happy to do this — the answer is to disapply Maximum Stock Loan Rate altogether. This means that any possible stock borrow rate, however astronomical, comes under Increased Cost of Stock Borrow, and Loss of Stock Borrow (which is slightly more onerous a termination right) only applies where there are no offers in the market at all.