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2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™
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Section 3.4 in a Nutshell™
Use at your own risk, campers!
3.4. Automatic Exercise. If “ Automatic Exercise” applies to an Option Transaction then (unless, by the Expiration Time on the Expiration Date Buyer notifies Seller that Automatic Exercise should not occur) each unexercised Option will be automatically exercised:
- 3.4(a) Cash Settlement: at the Expiration Time on the Expiration Date; and
- 3.4(b) Physical Settlement: if the Calculation Agent determines the Option to be In-the-Money at such time, as at the Expiration Time on the Expiration Date.
- 3.4(c) “In-the-Money” means:
- (i) For a Call: That the Reference Price at least equals the price at which a Related Exchange would automatically exercise a Physically-settled option on that Share with that Strike Price or, if there are no listed options on that Share or there is no Related Exchange, the Reference Price exceeds the Strike Price; and
- (ii) For a Put: That the Reference Price is no greater than the price at which a Related Exchange would automatically exercise a Physically-settled option on that Share with that Strike Price or, if there are no listed options on that Share, or there is no Related Exchange, the Reference Price is less than the Strike Price); and
- 3.4(d) “Reference Price” means the price per Share or per Basket determined as of the Expiration Time on the Expiration Date and, if no means of determining such price or amount are provided, that will be:
- (i) For a Share Option Transaction: The Relevant Price of the Share
- (ii) For a Share Basket Option Transaction:the sum of the values for each Share in the Basket determined as its Relevant Price multiplied by its Number of Shares (in either case, using the Valuation Time and Valuation Date as the Expiration Time and Expiration Date)
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Full text of Section 3.4
Section 3.4. Automatic Exercise. If “ Automatic Exercise” is specified to be applicable to an Option Transaction, then each Option not previously exercised under that Option Transaction will be deemed to be automatically exercised:
- 3.4(a) where “Cash Settlement” is applicable, at the Expiration Time on the Expiration Date unless Buyer notifies Seller or, if applicable, Seller’s Agent (by telephone or in writing) prior to the Expiration Time on the Expiration Date that it does not wish Automatic Exercise to occur, in which case Automatic Exercise will not apply; and
- 3.4(b) where “Physical Settlement” is applicable, at the Expiration Time on the Expiration Date if at such time the Option is In-the-Money, as determined by the Calculation Agent, unless Buyer notifies Seller or, if applicable, Seller’s Agent (by telephone or in writing) prior to the Expiration Time on the Expiration Date that it does not wish Automatic Exercise to occur, in which case Automatic Exercise will not apply.
- 3.4(c) “In-the-Money” means
- (i) in respect of a Call, that (A) the Reference Price is equal to or greater than the price for a Share at which any Related Exchange would automatically exercise a Physically-settled option with the Strike Price relating to such Share, or (B) if no options relating to such Share are listed on any Related Exchange or no Related Exchange is specified in the related Confirmation, the Reference Price is greater than the Strike Price; and
- (ii) in respect of a Put, that (A) the Reference Price is equal to or less than the price for a Share at which any Related Exchange would automatically exercise a Physically-settled option with the Strike Price relating to such Share, or (B) if no options relating to such Share are listed on any Related Exchange or no Related Exchange is specified in the related Confirmation, the Reference Price is less than the Strike Price.
- 3.4(d) “Reference Price” means the price per Share or amount per Basket determined as provided in the related Confirmation as of the Expiration Time on the Expiration Date or, if no means of determining such price or amount are so provided, in respect of a Share Option Transaction, the Relevant Price of the Share (for which purpose the Valuation Time and the Valuation Date will be the Expiration Time and the Expiration Date, respectively) and, in respect of a Share Basket Option Transaction, the sum of the values calculated as of the Expiration Time on the Expiration Date for the Shares of each Issuer as the product of the Relevant Price of such Share (for which purpose the Valuation Time and the Valuation Date will be the Expiration Time and the Expiration Date, respectively) and the relevant Number of Shares comprised in the Basket.
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Content and comparisons
3.1(a) Exercise Period
3.1(b) Exercise Date
3.1(c) Potential Exercise Date
3.1(d) Latest Exercise Time
3.1(e) Expiration Time
3.1(f) Expiration Date
“Multiple Exercise” crops up in a number of places in the extended ISDA Universe. The canonical definition is “Multiple Exercise” in the 2021 ISDA Interest Rate Derivatives Definitions, but it also shows up in the 2002 ISDA Equity Derivatives Definitions (Multiple Exercise) and the ISDA EU Emissions Annex (Multiple Exercise), in each case getting to the same point, but in marginally different language.
Summary
One where Stockholm syndrome has us almost loving the monster. There is a bitter beauty in these pointless, craggy ornaments.
What this one does is ensure that, if you have selected Automatic Exercise, that your options will be exercised, without the need for you to do anything if they are at, or in, the money. But don’t that that stop the ’squad going epic with it. This is Iwo Jima-league courage under fire.
See also
References