Template:Record amount paid amount ex amount
Careful: it’s (meant to be) about timing, not amount
So what is the difference betwixt a Record Amount, Paid Amount and Ex Amount? To be clear, it is not about whether you get paid, nor how much, but when. A Dividend Amount is a Dividend Amount: in each case “100%[1] of the gross cash dividend per Share”, end of the day. What this is all to do with is when a Dividend Amount is deemed to occur, which in turn is a function of which Dividend Period the trigger for the dividend falls in.
- The trigger where Record Amount applies is the record date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the record date falls.
- The trigger where Ex Amount applies is the ex date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the ex date falls.
- The trigger where Paid Amount applies is the payment date for the dividend in question. You should pay the gross cash dividend on the Cash Settlement Payment Date for that Dividend Period in which the dividend is paid.
Hang on a minute. “Paid”? Is that, like, different to “declared”? On purpose?
Is Paid Amount meant to be different from Record Amount or Ex Amount, in referencing not what is declared, but what the Issuer actually physically, real-world, paid out?
On one hand, on a natural reading it seems so: Record Amount and Ex Amount specify an amount by reference to the amount “declared by the Issuer to holders of record of a Share”, whereas Paid Amount references the amount “paid by the Issuer during the relevant Dividend Period to holders of record”. On the other hand there’s no sensible reason for supposing am Equity Amount Payer would want to keep the risk of solvency of an Issuer if it pays early[2] but not have it if it pays on the payment date. Examination of the world wide web seems to offer little help.
Dividend clawback: if the Issuer doesn’t actually pay a declared dividend
Nor does the User’s Guide to the 2002 ISDA Equity Derivatives Definitions. It suggests, without saying in which cases, that you might need a clawback right if you don’t want to be on the hook for a Dividend Amount declared but not eventually paid by the Issuer[3]:
- Dividend Recovery: If the amount an Issuer actually pays to Shareholders of record in respect of a gross cash dividend is less than the amount declared (a “Dividend Mismatch”) the Calculation Agent may calculate a payment under the Transaction to account for Dividend Mismatch and compensate for interest incurred by the party that made the relevant payments. Where the amount actually paid by the Issuer to Shareholders of record for any such dividend is paid or (scheduled) after the Termination Date, this provision will still apply even though relevant settlement date has passed. If the Issuer subsequently corrects the under-payment, the Calculation Agent may make a further adjustment.
“Parties should consider,” further ruminates the User’s Guide, in typically passive-aggressive fashion, “the potential credit risk created by this provision and may wish to consider whether such amounts are adequately covered under the definition of “Exposure” under any relevant credit support document.”
But on what planet would an Equity Amount Payer want to be liable for a dividend declared but not ultimately paid by the Issuer? And why?That would be to do something equity derivatives are expressly designed not to do.
House view: S.N.A.F.U.
The JC concludes this is simply a howler in the 2002 ISDA Equity Derivatives Definitions which ISDA hastily tried to cover up with that clawback malarkey. In any case, to be safe, reference the Paid Amount. Consensus amongst market professionals we have consulted is that Paid Amount does, as its drafting suggests, depend on the Issuer ponying up. That is where you want to be.