Trade Details - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™

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Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext)
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 to expand:

Section Trade Details in a Nutshell
Use at your own risk, campers!

1.17. “Trade Date” must be specified in the Confirmation.
1.18. “Buyer” means the party so specified.
1.19. “Seller” means the party so specified.
1.20. “Number of Shares” means:

(a) For a Share Option Transaction: Number of Options * Option Entitlement;
(b) For a Share Forward Transaction or a Share Swap Transaction: The number of Shares specified in the Confirmation; and
(c) For each Issuer in a Share Basket Transaction: the number of Shares of that Issuer specified in the Confirmation.

1.21. “Number of Baskets”: The number of Baskets specified in the Confirmation for an Index Basket Transaction or Share Basket Transaction.
1.22. “Multiplier” must be specified in the Confirmation.
1.23. “Relevant Price” means:

1.23(a) For any Index on any Valuation Date or Averaging Date, the Index level the Calculation Agent determines per the Confirmation at the Valuation Time or, if a method is not specified, the Index level at the Valuation Time; and
1.23(b) For a Share, the price per Share the Calculation Agent determines at the Valuation Time on the Valuation Date or Averaging Date per the Confirmation or, if a method is not specified:
(i) Open outcry Exchanges: for any Share trading on an “open outcry” Exchange with a tradable price at the Valuation Time, the official trading price per Share at that time as reported by the Exchange; and
(ii) Dealer quotation Exchanges: for any Share trading on a dealer quotation Exchange, the mid-point of the highest bid and lowest ask prices quoted at (or immediately before) the Valuation Time on the Valuation Date or Averaging Date ignoring quotations that “lock” or “cross” the Exchange.

1.24. “Equity Notional Amount” will be as specified or, if not specified, will be the “Notional Amount”), adjusted for Equity Notional Resets, Re-investment of Dividends and any Adjustments and Modifications.
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Full text of Section Trade Details

Section 1.17. Trade Date. “Trade Date” means, in respect of a Transaction, the date specified in the related Confirmation.
Section 1.18. Buyer. “Buyer” means the party specified as such in the related Confirmation.
Section 1.19. Seller. “Seller” means the party specified as such in the related Confirmation.
Section 1.20. Number of Shares. “Number of Shares” means:

1.20(a) in respect of a Share Option Transaction, the number of Shares obtained by multiplying the Number of Options by the Option Entitlement;
1.20(b) in respect of a Share Forward Transaction or a Share Swap Transaction, the number of Shares specified as such in the related Confirmation; and
1.20(c) in respect of a Share Basket Transaction for the Shares of each Issuer comprised in the Basket, the number of such Shares per Basket specified or otherwise determined as provided in the related Confirmation.

Section 1.21. Number of Baskets. “Number of Baskets” means, in respect of an Index Basket Transaction or a Share Basket Transaction, the number of Baskets specified or determined as provided in the related Confirmation.
Section 1.22. Multiplier. “Multiplier” means the percentage or amount specified as such in the related Confirmation.
Section 1.23. Relevant Price. “Relevant Price” on any day means:

1.23(a) in respect of an Index, the level of such Index determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or Averaging Date, as the case may be, or, if no means for determining the Relevant Price are so provided, the level of the Index as of the Valuation Time on the Valuation Date or Averaging Date, as the case may be; and
1.23(b) in respect of a Share, the price per Share determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or Averaging Date, as the case may be, or, if no means for determining the Relevant Price are so provided:
(i) in respect of any Share for which the Exchange is an auction or “open outcry” exchange that has a price as of the Valuation Time at which any trade can be submitted for execution, the Relevant Price shall be the price per Share as of the Valuation Time on the Valuation Date or Averaging Date, as the case may be, as reported in the official real-time price dissemination mechanism for such Exchange; and
(ii) in respect of any Share for which the Exchange is a dealer exchange or dealer quotation system, the Relevant Price shall be the mid-point of the highest bid and lowest ask prices quoted as of the Valuation Time on the Valuation Date or Averaging Date, as the case may be, (or the last such prices quoted immediately before the Valuation Time) without regard to quotations that “lock” or “cross” the dealer exchange or dealer quotation system.

Section 1.24. Equity Notional Amount. “Equity Notional Amount” means, in respect of an Equity Swap Transaction, the amount specified as such (or, if no such amount is specified, the amount specified as a “Notional Amount”) in the related Confirmation, adjusted, if applicable, as provided in Sections 5.10 and 10.4 and Article 11.
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Content and comparisons

A JC-curated sub-division of the General Definitions section. We sub-group the Section 1 definitions into the following subgroups:

These are the Trade Detailss: 1.17. Trade Date
1.18. Buyer
1.19. Seller
1.20. Number of Shares
1.21. Number of Baskets
1.22. Multiplier
1.23. Relevant Price
1.24. Equity Notional Amount

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Summary

Section 1.17 Trade Date

Boringly, there is a (formally) conflicting definition in the 2006 ISDA Definitions at Section 3.7. This means, if you are using definitions from both booklets, you need to be careful which one you specify, and create a priority in the case of conflict.

Well, you sort of do, if you are inclined to give a monkey’s —

WHAT ARE YOU TALKING ABOUT MAN OF COURSE YOU CARE. YOU ARE PAID TO CARE. YOU ARE PAID TO SWEAT THE LITTLE STUFF.

Section 1.18 Buyer

He, or she, who is not the Seller.

Section 1.19 Seller

The equivalent, for an Option Transaction, of an Equity Amount Payer for a Equity Swap Transaction. That is, the person paying away the equity performance.

Section 1.20 Number of Shares

Engine-room stuff, as you will see. ISDA’s crack drafting squad™ descending into the oubliette of sticky detail.

Section 1.21 Number of Baskets

See above. The obvious statement, for those nervous types who cannot bear to think what might happen if the common place and face-slappingly obvious were to go unarticulated.

Section 1.22 Multiplier

A fairly mechanical idea: if you want to have some kind of multiplier effect in your confirmation, here is where you designate it. Typically,[1] of course, your Multiplier will tend to be one, unless you are doing something funky.

Section 1.23 Relevant Price

On the difference between Final Price and Relevant Price

Final Price is defined in Article 5 of the 2002 ISDA Equity Derivatives Definitions and is germane therefore to Equity Swap Transactions only and not, say, Forward Transactions (which, circuitously, rely instead on Relevant Price, albeit defined in a similar way).

The Final Price also has separately broken-out scenarios for Basket Transactions (being just the weighted sums of the individual components in the basket). Relevant Price doesn't bother to break these out — whether that is a function of the fact that Share Basket Forwards behave differently to Basket Swaps, or just because the drafting committee was losing the will to live, is a question to which we have yet to get to the bottom.

Don’t hold your breath.

Section 1.24 Equity Notional Amount

Equity Notional Amount is different to the Initial Price in that Initial Price is expressed as a price per Share, whereas the Equity Notional Amount tends to be Initial Price * Number of Shares.

How Equity Notional Reset works

Strap yourselves in, kids!

A beginner’s guide to the complex and tortuous world of what happens when your Equity Notional Amount is subject to Equity Notional Reset.

The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows:

The long version’s a bit of a ball-breaker:

It’s like converting a posted variation margin into an absolute obligation by restriking the Transaction.
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See also

Template:M sa Equity Derivatives Trade Details
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References


  1. In synthetic prime brokerage, for example, and delta-one trades generally.