Template:Vwapadjustment

VWAP adjustments

Where share Final Price is determined by reference to the Volume Weighted Average Price during a trading session you may see this following amendment:

(a) Section 6.3(a) of the Equity Definitions shall be amended by deleting the words “at any time during the one hour period that ends at the relevant Valuation Time, Latest Exercise Time, Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and replacing them with the words “at any time during the regular trading session on the Exchange, without regard to after hours or any other trading outside of the regular trading session hours” and by amending and restating clause (a)(iii) thereof in its entirety to read as follows: “(iii) an Early Closure that the Calculation Agent determines is material”.

(b) Section 6.3(d) of the Equity Definitions shall be amended by deleting the remainder of the provision following the term “Scheduled Closing Time” in the fourth line thereof;

(c) If the final Valuation Date is a Disrupted Day, the Calculation Agent may determine that such day is a Disrupted Day only in part, in which case the Calculation Agent shall designate the Valuation Date determined pursuant to Section 6.6(a) for the remaining portion and the Calculation Agent shall make adjustments to the Number of Shares for which the Disrupted Day shall be the Valuation Date and shall determine the Final Price on the basis of such adjustments. Such adjustments will be based on such factors as the Calculation Agent deems relevant, and may include, without limitation, the duration of any Market Disruption Event and the volume, historical trading patterns and price of the Shares.

The current IRS interpretation is that benchmarking an equity swap to the close is viewed a cross (guilty until proven innocent). As such, one should not use the official close benchmark if trades are held until maturity as it would then invalidate them as true derivatives and recharacterize them as repos. We thus have to legally confirm VWAP over the day as an observable benchmark price for termination. This does not, however, prevent a counterparty from early terminating the swap exposure in methods other than VWAP.