Failure to Deliver - Equity Derivatives Provision

2002 ISDA Equity Derivatives Definitions A Jolly Contrarian owner’s manual™ 12.9(a)(iii) in a Nutshell™ The JC’s Nutshell™ summary of this term has moved uptown to the subscription-only ninja tier. For the cost of ½ a weekly 🍺 you can get it here. Sign up at Substack. 12.9(a)(iii) in all its glory 12.9(a)(iii) “Failure to Deliver” means the failure of a party to deliver, when due, the relevant Shares under that Transaction, where such failure to deliver is due to illiquidity in the market for such Shares; edit Resources and Navigation 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 Premium version of this page

Overview

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Section 12.9(a): The actual Additional Disruption Events

12.9(a)(i) Additional Disruption Event

12.9(a)(ii) Change in Law

12.9(a)(iii) Failure to Deliver

12.9(a)(iv) Insolvency Filing

12.9(a)(v) Hedging Disruption

12.9(a)(vi) Increased Cost of Hedging

12.9(a)(vii) Loss of Stock Borrow

12.9(a)(viii) Increased Cost of Stock Borrow

Summary

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Not generally stipulated as an Additional Disruption Event because firstly it would only be relevant in a physically-settled equity swap, and for a host of reasons taking physical settlement at the conclusion of a synthetic transaction, whose point is partly to avoid a physical exposure, is a bit of a contradiction in terms. Now where you do, for reasons best known to yourself, elect physical settlement this provision allows the innocent party to buy-in and charge any cost differential to the failing party.

You may want to head over to Consequences of Failure to Deliver under 12.9(b)(ii), where you will discover that ISDA’s crack drafting squad™ have ploughed their own long, lonely, weird furrow about how to resolve settlement failures instead of copying what the cash equity markets and stock lending markets do. They’re fun like that, are the ’squad.

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• The JC’s famous Nutshell™ summary of this clause
• Why Failure to Deliver is the flame-haired step-child of the Additional Disruption Events family
• A read across to the stock-lending and cash equities markets deal with physical settlement disruptions, which happen a lot
• A tentative hypothesis as to why Failure to Deliver is routinely disapplied in synthetic equity derivatives master confirmations

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See also

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• Indemnification for Failure to Deliver
• Consequences of Failure to Deliver under 12.9(b)(ii)