2002 ISDA Equity Derivatives Definitions
Equity Derivatives Anatomy™
If you are looking for literature to broaden your earthly perspective, or shine a torch into the dark crevices of the human condition, the 2002 ISDA Equity Derivatives Definitions might not be the first volume you would pull off the shelf, but in its own way, in its Escheresque self-referencing reflexivity, it affords us an oblique perspective on the motivations of those who operate in the strange demi-monde of the international capital markets.
Commonplaces of the sort any mug knows instinctively without needing to be told are said, said, and said again; abstrusities about which even the cognoscenti might like more elucidation — like what counts as a “Dividend” — are left tantalisingly under-determined. Some parts — the calculation of Dividend Amount — just don’t work at all, so the market has resorted to its own organic means of resolution (the JC has its own suggestions, too — see here).
The 2002 definitions bear the scars and proclivities of their age: twenty years old now, a product of a time, when it seemed history had ended and derivatives had solved the problem of how to allocate risk to those who are best placed to bear it. We are older and wiser, readers, and most of us now know differently — those who don’t have decamped for the crypto markets, where they will find out soon enough — and so everyone has grown comfy with the dear old “2002s”.
They were meant to be superseded, in 2011, by the 2011 Equity Derivatives Definitions, thrillingly written by a squadron of chatbots from Linklaters in bang-up-to-date, state-of-the-art, super duper hi-tech Financial products Markup Language, but — well, in a lovely example of the Lindy effect, everyone ignored the new versions, and still uses the stupid old 2002s.
The JC being in the first rank a pragmatist, you will find little information here about the newer booklet — other than the odd wry remark about the Hindenburg, and the mortal scarring to those poor folk at Linklaters who wrote the damn things, but plenty about the ghastly old 2002 ISDA Equity Derivatives Definitions — a whole anatomy dedicated to that — seeing as that is what everyone still uses. Thus, read on:
Article 1. Certain General Definitions
Article 2. General Terms Relating to Option Transactions
Article 3. Exercise of Options
Article 4. General Terms Relating to Forward Transactions
Article 5. General Terms Relating to Equity Swap Transactions
Article 6. Valuation
Article 7. General Terms Relating to Settlement
Article 8. Cash Settlement
Article 9. Physical Settlement
Article 10. Dividends
Article 11. Adjustments and Modifications Affecting Indices, Shares and Transactions
Article 12. Extraordinary Events
Article 13. Miscellaneous