Cash Settlement of Equity Swap Transactions - Equity Derivatives Provision

Equity Derivatives Anatomy™ Go Premium Section 8.6. Cash Settlement of Equity Swap Transactions. In respect of each Cash Settlement Payment Date for an Equity Amount Payer under an Equity Swap Transaction for which "Cash Settlement” is applicable: 8.6(a) if the Type of Return specified in the related Confirmation is “Price Return”, then: (i) if the Equity Amount determined by the Calculation Agent in relation to that Equity Amount Payer is a positive number, then that Equity Amount Payer will pay (in addition to any other amounts payable by that Equity Amount Payer) to the Equity Amount Receiver the Equity Amount on the relevant Cash Settlement Payment Date; and (ii) if the Equity Amount determined by the Calculation Agent in relation to that Equity Amount Payer is a negative number, then the Equity Amount Receiver will pay (in addition to any other amounts payable by that Equity Amount Receiver) to the Equity Amount Payer the absolute value of the Equity Amount on the relevant Cash Settlement Payment Date; 8.6(b) if the Type of Return specified in the related Confirmation is “Total Return” and “Re-investment of Dividends” is not applicable, then Section 8.6(a) will apply as though Price Return were the applicable Type of Return and, in addition, on each Dividend Payment Date, the relevant Equity Amount Payer will pay to the Equity Amount Receiver the relevant Dividend Amount (if any) owed by such Equity Amount Payer on that Dividend Payment Date; and 8.6(c) if the Type of Return specified in the related Confirmation is “Total Return” and “Re-investment of Dividends” is applicable, then Section 8.6(a) will apply as though Price Return were the applicable Type of Return, provided that for purposes of determining the relevant Equity Amount for each subsequent Cash Settlement Payment Date the Calculation Agent shall make the adjustment provided for in Section 10.4. (view template) 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 Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Equity Swap Transactions can be settled either by reference to Price Return or Total Return, but not Slight Return.

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!

See also Equity Notional Reset whcih provides for the automatically re-striking of the Equity Notional Amount each Cash Settlement Payment Date.