Market Disruption Event - Equity Derivatives Provision
Commentary
Other relevant concepts:
- Disrupted Day, being a day on which a Market Disruption Event has occurred.
- Consequences of Disrupted Days;
- Trading Disruption under 6.3(b);
- Exchange;
- Related Exchange;
- Exchange Disruption under 6.3(c);
- Early Closure under 6.3(d).
What counts as Market Disruption?
A Market Disruption Event is a Trading Disruption or Exchange Disruption at any time during the hour before any Valuation Time or Exercise Time, or Early Closure.
- Trading Disruption: suspension/limitation in trading on an underlier (or futures on it) on any Exchange/Related Exchange*Exchange Disruption: any event that impairs the ability to value, settle transactions across any Exchange/Related Exchange
- Early Closure: the closure of any Exchange/Related Exchange prior to scheduled closing time unless announced at least one hour prior to the earlier of (i) the actual closing time for the regular trading session on that exchange and (ii) the submission deadline for orders on Exchange for execution at the Valuation Time
Additionally a day is “Disrupted Day” if an Exchange/Related Exchange fails to open for trading during a regular trading session.
Indices
In the case of an Index, the disruption needs to affect 20% of more of the securities comprising the Index for the Index to be treated as disrupted. In that case valuation is moved for the whole index, not just the disrupted part.
Baskets
In the case of Baskets where some underliers are disrupted and some aren’t, only the affected underliers are subject to disruption provisions and the undisrupted aspects settle/value as scheduled.
Exchange/Related Exchange
- Determining which are the “Exchanges” and “Related Exchanges” is ordinarily straightforward as they are specified in the confirmation.
- However, where “All Exchanges” is specified as the “Related Exchange”, then the Market Disruption Event may be triggered if there is a disruption on any exchange where trading has a material effect (as determined by Calculation Agent) on the overall market for futures or options relating to the underlier.