Change in Law - Equity Derivatives Provision

Equity Derivatives Anatomy™ Go Premium 12.9(a)(ii) “Change in Law” means that, on or after the Trade Date of any Transaction: (A) due to the adoption of or any change in any applicable law or regulation (including, without limitation, any tax law), or (B) due to the promulgation of or any change in the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law or regulation (including any action taken by a taxing authority), a party to such Transaction determines in good faith that: (X) it has become illegal to hold, acquire or dispose of Shares relating to such Transaction, or (Y) it will incur a materially increased cost in performing its obligations under such Transaction (including, without limitation, due to any increase in tax liability, decrease in tax benefit or other adverse effect on its tax position); (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.

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12.9(a)(ii) in a Nutshell™ _{(equity derivatives edition)}

12.9(a)(ii) “Change in Law” means either party determines that, due to a change in law or regulation:

(X) it becomes illegal to buy, sell or hold underlying Shares or;

(Y) it becomes materially more expensive to perform the Transaction.

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Shares versus Hedge Positions

Common to see references in (x) to “Shares” replaced by the slightly wider “Hedge Positions”. Not objectionable. Uber pedants may also try to argue that there should be some obligation on the Hedging Party to take reasonable steps to avoid a change of law. This is silly, Chicken Licken behaviour. I mean what are you meant to do? Lobby congress? (Remember “Hedge Positions” is wider and more generic than “any particular hedge position that you happen to have on” at the time the law changes. If you can change your hedging strategy, you are not subject to a Change in Law. So resist this drafting, but don’t die in a ditch about it.

Omission of “Prong Y”: The “material increase in costs” limb

The industry has generally moved to omit the “Increased Cost of Hedging” aspects of this definition (because it is dealt with there).

But, if you were splitting hairs about it, you might say that not all “materially increased” costs a party may incur “in performing its obligations under such Transaction” will necessarily relate to hedging, so a Hedging Party (and, when it comes to it, a non-Hedging Party) should stand its ground on omitting “Prong Y”.

Those who do not have the stomach for this fight may see this expressed as: "Applicable, provided that Section 12.9(a)(ii)(Y) of the Equity Definitions does not apply."

See also, for example, the 2007 European Master Equity Derivatives Confirmation Agreement, which provides the following:

Consequences

The consequences of a Change in Law (or an Insolvency Filing are set out in 12.9(b)(i): Template:Eqderivsnap