Increased Cost of Hedging - Equity Derivatives Provision

Equity Derivatives Anatomy™ →Go uptown 12.9(a)(vi) “Increased Cost of Hedging” means that the Hedging Party would incur a materially increased (as compared with circumstances existing on the Trade Date) amount of tax, duty, expense or fee (other than brokerage commissions) to (A) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the equity price risk of entering into and performing its obligations with respect to the relevant Transaction, or (B) realize, recover or remit the proceeds of any such transaction(s) or asset(s), provided that any such materially increased amount that is incurred solely due to the deterioration of the creditworthiness of the Hedging Party shall not be deemed an Increased Cost of Hedging; (view template) 12.9(b)(vi) If “Increased Cost of Hedging” is specified in the related Confirmation to be applicable to a Transaction, then upon the occurrence of such an event the Hedging Party will give prompt notice to the Non-Hedging Party that such increased costs have been incurred and that a Price Adjustment will be made to the Transaction. The Non-Hedging Party shall, within two Scheduled Trading Days of receipt of the notice of Increased Cost of Hedging and corresponding Price Adjustment, notify the Hedging Party that it elects to (A) agree to amend the relevant Transaction to take into account the Price Adjustment, (B) pay the Hedging Party an amount determined by the Calculation Agent that corresponds to the Price Adjustment or (C) terminate the Transaction as of that second Scheduled Trading Day. If such notice is not given by the end of that second Scheduled Trading Day, then the Hedging Party may give notice that it elects to terminate the Transaction, specifying the date of such termination, which may be the same day that the notice of termination is effective. If either party elects to terminate the Transaction, the Determining Party will determine the Cancellation Amount payable by one party to the other. (view template) Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext) | Equity v credit derivatives showdown Hot topics Synthetic Prime Brokerage Anatomy | The Triple Cocktail | Cancellation and Payment | Calculation Agent TOC | 1 General Definitions | 2 Option Transactions | 3 Exercise of Options | 4 Forward Transactions | 5 Equity Swap Transactions | 6 Valuation | 7 Settlement | 8 Cash Settlement | 9 Physical Settlement | 10 Dividends | 11 Adjustments and Modifications | 12 Extraordinary Events · 12.8 Cancellation Amount · 12.9 Additional Disruption Events · 12.9 List of ADEs · 12.9(b) Consequences of ADEs | 13 Miscellaneous Index: Click ᐅ to expand: Equity Derivatives - Premium Synthetic Prime Brokerage Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Compare with Increased Cost of Stock Borrow, the equivalent provision where the Hedging Party is short.

12.9(a)(vi) and 12.9(b)(vi) In a Nutshell™ _{(Equity Derivatives edition)}

12.9(a)(vi) “Increased Cost of Hedging” means that the Hedging Party would incur a materially increased cost under the Transaction to:

(A) hedge its equity price risk; or

(B) realise the proceeds of its hedge.

This excludes costs arising solely from the deterioration of its own creditworthiness.

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12.9(b)(vi) If “Increased Cost of Hedging” applies and it occurs, the Hedging Party will so notify the Non-Hedging Party and that it will make a Price Adjustment. Within 2 Scheduled Trading Days the Non-Hedging Party must elect to the Hedging Party either to:

(A) amend the Transaction to cater for the Price Adjustment,

(B) pay the Hedging Party the Price Adjustment or

(C) terminate the Transaction as of that second Scheduled Trading Day. Absent such an election the Hedging Party may terminate the Transaction. On any termination of the Transaction, the Determining Party will determine the Cancellation Amount.

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Part of the famed “triple cocktail” of protections against unexpected problems hedging and risk managing Transactions, together with Hedging Disruption and Change in Law. Note also references to Hedging Party. Template:Triplecocktail

See also

Consequences of an Additional Disruption Event in particular 12.9(b)(vi).