Template:M comp disc Equity Derivatives 12.7

Not to be confused with Cancellation and Payment as they appear in section 11.1(b) relating to Adjustments and Modifications, and Partial Cancellation and Payment as it relates to Merger Events in section 12.2(f).

Adjustments and Modifications under Article 11 relate to external events that affect Indices, Shares and Transactions but are not necessarily fatal to the economic intents of the parties as originally envisaged — things like changes in index sponsors, successor indices, adjustments to calculations methodologies and so on. These allow the Transaction to continue, albeit may require some adjustments to legal or economic terms — as determined by the Calculation Agent so that everything still works and is intended.
Extraordinary Events under Article 12 are of a more existential nature, and will require either termination or adjustment with mutual consent of the parties. These are:

• Significant events relating to the Issuer or its Shares (Merger Events, Tender Offers, Nationalization, Insolvency and Delisting etc); or
• Additional Disruption Events affecting the market under section 12.9 such as Change in Law, Hedging Disruption, Increased Cost of Hedging, Loss of Stock Borrow or Increased Cost of Stock Borrow, all of which were relate to the Hedging Party’s Hedge Positions rather than the underlying Issuer.

What happens upon Cancellation following Extraordinary Events depends on whether your Transaction is an Option Transaction — in which case Section 12.7(b) applies and there is all kinds of fun with Agreed Models or Calculation Agent Determination — or a Forward Transaction or Equity Swap Transaction, in which case the shorter Section 12.7(c) will apply, and unless you’ve been unwise enough to agree there should be two Determining Parties, the Hedging Party (in its guise as Determining Party) will close out its hedge and present the bill. But you knew all that, right?