Potential Adjustment Event - Equity Derivatives Provision
Template:Eqderivanat
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
Corporate adjustments that may dilute or concentrate the theoretical value of the Shares.
Retrospective adjustments
Now what might happen under a total return swap if such a Potential Adjustment Event happens retrospectively, after a Transaction has been terminated (or has matured)? This does happen from time to time. For example:
- A total return swap transaction is traded on 1 January. It matures and is settled on 1 June. On 1 September, following an accounting error coming to light, the Issuer declares an Extraordinary Dividend to all holders of record on 1 March. It pays this dividend on 1 December.