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So for example in the example below Party A provide exposure to client, hedges that with a equity TRS to Hedging Party, which goes long the physical share. Now the Hedging Party, not Party A, has the risk of the physical assets. If there is a market disruption, or a tax event on the physical hedge this is reflected in the price that Hedging Party will have to pay to Party A, but it isn’t a market disruption or tax event ''directly'' on Party A itself (and in fact might not be – Party A might be domiciled in a jurisdiction benefitting from a different tax treaty with the jurisdiction of the underlier, for example). So in this case we need to reference the position as held by a person other than the counterparty to the swap. | So for example in the example below Party A provide exposure to client, hedges that with a equity TRS to Hedging Party, which goes long the physical share. Now the Hedging Party, not Party A, has the risk of the physical assets. If there is a market disruption, or a tax event on the physical hedge this is reflected in the price that Hedging Party will have to pay to Party A, but it isn’t a market disruption or tax event ''directly'' on Party A itself (and in fact might not be – Party A might be domiciled in a jurisdiction benefitting from a different tax treaty with the jurisdiction of the underlier, for example). So in this case we need to reference the position as held by a person other than the counterparty to the swap. | ||
Note also that | Note also that “{{eqderivprov|Non-Hedging Party}}” definition somewhat assumes that the {{eqderivprov|Hedging Party}} will indeed be the actual counterparty to the {{isdaprov|Transaction}}. | ||
{{Seealso}} | {{Seealso}} |