Loss of Stock Borrow - Equity Derivatives Provision

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Loss of Stock Borrow is an Additional Disruption Event in the 2002 ISDA Equity Derivatives Definitions, and is fondly abbreviated, by this commentator at least, to LOSB.


12.9(b)(iv) in a Nutshell (Equity Derivatives edition)

12.9(b)(iv) If “Loss of Stock Borrow” applies, then if the Hedging Party notifies the Non-Hedging Party of a Loss of Stock Borrow, the Non-Hedging Party may, within 2 Scheduled Trading Days of notice, lend the Hedging Party the necessary Shares at a rate no greater than the Maximum Stock Loan Rate. If it does not, the Hedging Party may terminate the Transaction on notice and the Determining Party will determine the Cancellation Amount.

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Definition

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Operative Provision

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But see also 12.9(b)(vii) which deals with the tension between LOSB and Hedging Disruption.

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Commentary

Summary: Where the Hedging Party can't locate a stock borrow, the Non-Hedging Party has the option to source one that is struck at less than the Maximum Stock Loan Rate within two Scheduled Trading Days, failing which the Hedging Party can terminate the Transaction. Where LOSB and Hedging Disruption both apply and the same event could qualify as either, it will hbe treated as a LOSB (which has milder consequences for the affected party).

Compare and contrast with Increased Cost of Stock Borrow. There is a logical handoff and interaction between the two.

Related Provisions

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