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Equity Derivatives Anatomy

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Equity Derivatives Anatomy™

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This is a users' guide to the 2002 ISDA Equity Derivatives Definitions. For an introduction to what an equity derivative even is, visit the “what even is an equity derivative?” page. I’m sure you’ll enjoy it.

Table of Contents

Article 1. Certain General Definitions

1.1. Transaction
1.2. Option Transaction
1.3. Forward Transaction
1.4. Equity Swap Transaction
1.5. Index Transaction
1.6. Share Transaction
1.7. Index Basket Transaction
1.8. Share Basket Transaction
1.9. Basket Option Transaction
1.10. Basket Forward Transaction
1.11. Basket Swap Transaction
1.12. Confirmation
1.13. Index
1.14. Shares
1.15. Basket
1.16. Issuer
1.17. Trade Date
1.18. Buyer
1.19. Seller
1.20. Number of Shares
1.21. Number of Baskets
1.22. Multiplier
1.23. Relevant Price
1.24. Equity Notional Amount
1.25. Exchange
1.26. Related Exchange
1.27. Clearance System
1.28. Index Sponsor
1.29. Exchange Business Day
1.30. Scheduled Closing Time
1.31. Scheduled Trading Day
1.32. Currency Business Day
1.33. Settlement Currency
1.34. Euro
1.35. EC Treaty
1.36. Clearance System Business Day
1.37. Settlement Cycle
1.38. Cash-settled
1.39. Physically-settled
1.40. Calculation Agent
1.41. ISDA Master Agreement
1.42. Knock-in Price
1.43. Knock-out Price
1.44. Knock-in Event
1.45. Knock-out Event
1.46. Knock-in Reference Security
1.47. Knock-out Reference Security
1.48. Knock-in Determination Day
1.49. Knock-out Determination Day
1.50. Knock-in Valuation Time
1.51. Knock-out Valuation Time

Article 2 General Terms Relating to Option Transactions

Section 2.1 Certain Definitions and Provisions Relating to Option Transactions

2.1(a) Commencement Date
2.1(b) Number of Options
2.1(c) Option Entitlement
2.1(d) Option
2.1(e) Strike Price

Section 2.2. Option Style

2.2(a) American Option
2.2(b) Bermuda Option
2.2(c) European Option

Section 2.3. Option Type

2.3(a) Call
2.3(b) Put

Section 2.4. Terms Relating to Premium

2.4(a) Payment of Premium
2.4(b) Premium
2.4(c) Premium Payment Date

Article 3 Exercise of Options

Section 3.1. General Terms Relating to Exercise

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

Section 3.2. Procedure for Exercise

Section 3.3. Multiple Exercise

“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.

Section 3.4. Automatic Exercise

Article 4 General Terms Relating to Forward Transactions

Section 4.1. Certain Definitions Relating to Forward Transactions

4.1(a) Forward Price
4.1(b) Forward Floor Price
4.1(c) Forward Cap Price

Section 4.2. Terms Relating to Prepayment

4.2(a) Payment of the Prepayment Amount
4.2(b) Prepayment Amount
4.2(c) Prepayment Date

Article 5 General Terms Relating to Equity Swap Transactions

Section 5.1. Equity Amount Payer
Section 5.2. Equity Amount Receiver
Section 5.3. Initial Exchange Amount
Section 5.4. Initial Exchange Date
Section 5.5. Final Exchange Amount
Section 5.6. Final Exchange Date
Section 5.7. Rate of Return
Section 5.8. Initial Price
Section 5.9. Final Price
Section 5.10. Equity Notional Reset

Article 6. Valuation

Section 6.1. Valuation Time
Section 6.2. Valuation Date
Section 6.3. General Terms Relating to Market Disruption Events

6.3(a) Market Disruption Event
6.3(b) Trading Disruption
6.3(c) Exchange Disruption
6.3(d) Early Closure

Section 6.4. Disrupted Day
Section 6.5. Scheduled Valuation Date
Section 6.6. Consequences of Disrupted Days
Section 6.7. Averaging

6.7(a). Averaging Date
6.7(b). Settlement Price and Final Price
6.7(c). Averaging Date Disruption
6.7(d). Adjustments of the Exchange-traded Contract
6.7(e). Adjustments to Indices (Averaging)

Section 6.8. Futures Price Valuation

6.8(a) Valuation Date (Futures Price Valuation)
6.8(b) Additional definitions (Futures Price Valuation)
6.8(c) Settlement Price and Final Price (Futures Price Valuation)
6.8(d) Adjustments of the Exchange-traded Contract (Futures Price Valuation)
6.8(e) Non-Commencement or Discontinuance of the Exchange-traded Contract
6.8(f) Corrections of the Official Settlement Price

Article 7. General Terms Relating to Settlement

Section 7.1. Settlement Method Election
Section 7.2. Settlement Method Election Date
Section 7.3. Settlement Price

8 Cash Settlement
Section 8.1 Cash Settlement of Option Transactions
Section 8.2 Option Cash Settlement Amount
Section 8.3 Strike Price Differential
Section 8.4 Cash Settlement of Forward Transactions
Section 8.5 Forward Cash Settlement Amount
Section 8.6 Cash Settlement of Equity Swap Transactions

8.6(a). Price Return
8.6(b). “Total Return” and “Re-investment of Dividends” is not applicable
8.6(c). “Total Return” and “Re-investment of Dividends” is applicable

Section 8.7 Equity Amount
Section 8.8 Cash Settlement Payment Date

Article 9. Physical Settlement

Section 9.1. Physical Settlement of Option Transactions
Section 9.2. Physical Settlement of Forward Transactions
Section 9.3. Physical Settlement of Equity Swap Transactions
Section 9.4. Settlement Date
Section 9.5. Number of Shares to be Delivered
Section 9.6. Number of Baskets to be Delivered
Section 9.7. Fractional Share Amount
Section 9.8. Settlement Disruption Event
Section 9.9. Expenses
Section 9.10. Delivery Versus Payment
Section 9.11. Representation and Agreement
Section 9.12. Indemnification for Failure to Deliver

Article 10 Dividends
Section 10.1. Dividend Amount

10.1(a) Record Amount
10.1(b) Ex Amount
10.1(c) Paid Amount

Section 10.2. Dividend Payment Date
Section 10.3. Dividend Period

10.3(a) First Period
10.3(b) Second Period

Section 10.4. Re-investment of Dividends
Section 10.5. Dividend Payment Obligations Relating to Physically-settled Option Transactions
Section 10.6. Extraordinary Dividend
Section 10.7. Excess Dividend Amount

10.7(a) Record Amount (Excess Dividend Amount)
10.7(b) Ex Amount (Excess Dividend Amount)
10.7(c) Paid Amount (Excess Dividend Amount)

Article 11. Adjustments and Modifications Affecting Indices, Shares and Transactions
Section 11.1 Adjustments to Indices

11.1(a) (Successor Indices)
11.1(b) (Index Adjustment Events)
11.1(b)(A) (Calculation Agent Adjustment (Adjustment Events))
11.1(b)(B) (Negotiated Close-out (Adjustment Events))
11.1(b)(C) (Cancellation and Payment (Adjustment Events))

Section 11.2. Adjustments to Share Transactions and Share Basket Transactions

11.2(a). Method of Adjustment
11.2(b). Options Exchange Adjustment
11.2(c). Calculation Agent Adjustment
11.2(d). Options Exchange
11.2(e). Potential Adjustment Event

Section 11.3. Adjustments to Certain Share Transactions and Share Basket Transactions in European Currencies
Section 11.4. Correction of Share Prices and Index Levels

Article 12. Extraordinary Events

Section 12.1. General Provisions Relating to Extraordinary Events

12.1(a). “Extraordinary Event”
12.1(b). “Merger Event”
12.1(c). “Merger Date”
12.1(d). “Tender Offer”
12.1(e). “Tender Offer Date”
12.1(f). “Share-for-Share”
12.1(g). “Share-for-Other”
12.1(h). “Share-for-Combined”
12.1(i). “New Shares”
12.1(j). “Other Consideration”
12.1(k). “Combined Consideration”
12.1(l). “Announcement Date”
12.1(m). “Implied Volatility”
12.1(n). “Affected Shares”

Section 12.2. Consequences of Merger Events

12.2(a). “Alternative Obligation (Merger Events)”
12.2(b). “Cancellation and Payment (Merger Events)”
12.2(c). “Options Exchange Adjustment (Merger Events)”
12.2(d). “Calculation Agent Adjustment (Merger Events)”
12.2(e). “Modified Calculation Agent Adjustment (Merger Events)”
12.2(f). “Partial Cancellation and Payment (Merger Events)”
12.2(g). “Component Adjustment (Merger Events)”

Section 12.3. Consequences of Tender Offers

12.3(a) Cancellation and Payment (Tender Offers)
12.3(b) Options Exchange Adjustment (Tender Offers)
12.3(c) Calculation Agent Adjustment (Tender Offers)
12.3(d) Modified Calculation Agent Adjustment (Tender Offers)
12.3(e) Partial Cancellation and Payment (Tender Offers)
12.3(f) Component Adjustment (Tender Offers)

Section 12.4. Settlement Following a Merger Event or Tender Offer
Section 12.5. Composition of Combined Consideration
Section 12.6. Nationalization, Insolvency and Delisting
Section 12.7. Payment upon Certain Extraordinary Events

12.7(a) (Cancellation and Payment; Partial Cancellation and Payment)
12.7(b) (Effect of Extraordinary Events on Option Transactions)
12.7(c) (Effect of Extraordinary Events on Forward Transactions and Equity Swap Transactions)

Section 12.8. Cancellation Amount

12.8(a) “Cancellation Amount”
12.8(b) “Means of determination”
12.8(c) “Determination”
12.8(d) “Quotations”
12.8(e) “Liquidation of hedges”
12.8(f) “Determining Party”
12.8(g) “Commercially reasonable procedures”

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

Article 13. Miscellaneous

Section 13.1. Non-Reliance

Section 13.2. Agreements and Acknowledgments Regarding Hedging Activities

13.2(a) Agreements and Acknowledgments Regarding Hedging Activities applicable
13.2(b) Hedge Positions
13.2(c) Hedging Activities

Section 13.3. Index Disclaimer

Section 13.4. Additional Acknowledgments

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