Cash Settlement Payment Date - Equity Derivatives Provision

Commentary

A provision that does very little to help an inquiring mind with the question "What is the Cash Settlement Payment Date actually, like, for?

For that, you would be advised to consult Section 8.6, Cash Settlement of Equity Swap Transactions, which differentiates between "Price Return", which concerns itself purely with the prevailing equity price of the underlier, and "Total Return" which also factors in dividends paid on the relevant stock.

Section 8.6, Cash Settlement of Equity Swap Transactions, provides, more or less, that where “Cash Settlement” applies, a payment is made on each Cash Settlement Payment Date depending on the Type of Return specified.

• Price Return is simply a function of the price at the beginning and end, and takes no account of declared dividends or other income or distributions received off the underlier in the mean time. It is simply the the Equity Notional Amount * Rate of Return (where Rate of Return is ((Final Price - Initial Price)/Initial Price) * Multiplier (if any)); the Equity Amount, paid one way or the other depending on whether it is positive or negative)
• Total Return is the Price Return, but adjusted for income:
  • if Re-investment of Dividends does not apply, applicable Dividend Amounts will also be paid by the Equity Amount Payer (along with the Equity Amount, whichever way it might be paid, as per Price Return);
  • if Re-investment of Dividends does apply, then Equity Amounts will be adjusted as per the “Re-investment of Dividends” provision.
• Slight return takes you to a whole different world altogether. The next one, in fact. Don’t be late!

Related Provisions

{{How Equity Notional Reset works