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2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™
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Section 3 in a Nutshell™
Use at your own risk, campers!
Article 3 Exercise of Options
3.1. General Terms Relating to Exercise.
- 3.1(a) “Exercise Period” means:
- (i) For American Options: all Scheduled Trading Days from, and including, the Commencement Date to, and including, the Expiration Date between 9:00 a.m. and the Latest Exercise Time,
- (ii) For Bermuda Options: each Potential Exercise Date and the Expiration Date, between 9:00 a.m. and the Latest Exercise Time, and
- (iii) For European Options: the Expiration Date between 9:00 a.m. and the Expiration Time.
- All such times will be local time in the location specified in the Confirmation for receipt by Seller or Seller’s Agent or, if not specified, local time in the jurisdiction of the Exchange.
- 3.1(b) “Exercise Date” means the Scheduled Trading Day during the Exercise Period on which such Option is exercised.
- 3.1(c) “Potential Exercise Date” means each specified as such in a Bermuda Option Confirmation (or, if it is not a Scheduled Trading Day, the next following Scheduled Trading Day), unless it is a Disrupted Day due to an event occurring before the Latest Exercise Time in which case it will be the following undisrupted Scheduled Trading Day, though if eight Scheduled Trading Days in a row are Disrupted Days, the eighth one, even though a Disrupted Day, will be the Potential Exercise Date. In any case, if an Option Transaction is exercised on a Scheduled Trading Day that would have been an Potential Exercise Date had it not been a Disrupted Day, that day will be treated as the Potential Exercise Date when determining whether an Exercise Date has occurred during the Exercise Period.
- 3.1(d) “Latest Exercise Time” will be specified in the Option Transaction Confirmation (and if it is not, will be the Expiration Time). On the Expiration Date it will be the Expiration Time.
- 3.1(e) The “Expiration Time” for an Option Transaction will be the time specified or, if not specified, the Valuation Time.
- 3.1(f) “Expiration Date” will be specified in an Option Transaction Confirmation (or, if it is not a Scheduled Trading Day, the following Scheduled Trading Day), unless that day has become a Disrupted Day before the Latest Exercise Time. In this case it will be the next undisrupted Scheduled Trading Day, though if eight Scheduled Trading Days in a row are Disrupted Days, the eighth one, even though a Disrupted Day, will be the Expiration Date. In any case, if an Option Transaction is exercised on a Scheduled Trading Day that would have been an Expiration Date had it not been a Disrupted Day, that day will be treated as the Expiration Date when determining whether an Exercise Date has occurred during the Exercise Period.
3.2. Procedure for Exercise.
- (a) Notice: Unless Automatic Exercise applies, Buyer must give irrevocable notice during the Exercise Period to Seller to exercise an Option.
- (b) Late notices: For American Options, a notice given after the Latest Exercise Time on a Scheduled Trading Day will be effective on the following Scheduled Trading Day in the Exercise Period (if there is one).
- (c) Multiple Exercise: Where Multiple Exercise applies, Buyer must specify how many Options it is exercising on each Exercise Date.
- (d) Written confirmation of oral notices: Buyer will execute and deliver to Seller a written confirmation confirming any oral exercise within one Scheduled Trading Day however, failure by to provide such confirmation will not affect the validity of an oral notice.
3.3. Multiple Exercise.
- 3.3(a) If “Multiple Exercise” applies to an American Option or a Bermuda Option, Buyer may exercise any part of the unexercised Options on any Scheduled Trading Day during the Exercise Period but may not exercise fewer than the Minimum Number of Options or more than the Maximum Number of Options on any one Scheduled Trading Day, and where an “Integral Multiple” is specified, only in that Integral Multiple.
- An attempted exercise on any Scheduled Trading Day of:
- (i) more than the Maximum Number of Options will be treated as an exercise of the Maximum Number of Options only (and the excess will remain unexercised);
- (ii) fewer than the Minimum Number of Options will be ineffective; and
- (iii) an amount of Options that is not in the Integral Multiple will be rounded down to the next lowest Integral Multiple (and the excess will remain unexercised).
- 3.3(b) Clean-up exercise: In any case, Buyer may exercise any number of Options that does not exceed the Maximum Number of Options provided that is all the remaining unexercised Options on any Exercise Date and, on the Expiration Date, all unexercised Options.
- 3.3(c) “Minimum Number of Options” will be specified in the Option Transaction Confirmation where Multiple Exercise applies.
- 3.3(d) “Maximum Number of Options” will be specified in the Option Transaction Confirmation where Multiple Exercise applies.
3.4. Automatic Exercise. If “Automatic Exercise” applies to an Option Transaction then (unless, by the Expiration Time on the Expiration Date Buyer notifies Seller that Automatic Exercise should not occur) each unexercised Option will be automatically exercised:
- 3.4(a) Cash Settlement: at the Expiration Time on the Expiration Date; and
- 3.4(b) Physical Settlement: if the Calculation Agent determines the Option to be In-the-Money at such time, as at the Expiration Time on the Expiration Date.
- 3.4(c) “In-the-Money” means:
- (i) For a Call: That the Reference Price at least equals the price at which a Related Exchange would automatically exercise a Physically-settled option on that Share with that Strike Price or, if there are no listed options on that Share or there is no Related Exchange, the Reference Price exceeds the Strike Price; and
- (ii) For a Put: That the Reference Price is no greater than the price at which a Related Exchange would automatically exercise a Physically-settled option on that Share with that Strike Price or, if there are no listed options on that Share, or there is no Related Exchange, the Reference Price is less than the Strike Price); and
- 3.4(d) “Reference Price” means the price per Share or per Basket determined as of the Expiration Time on the Expiration Date and, if no means of determining such price or amount are provided, that will be:
- (i) For a Share Option Transaction: The Relevant Price of the Share
- (ii) For a Share Basket Option Transaction:the sum of the values for each Share in the Basket determined as its Relevant Price multiplied by its Number of Shares (in either case, using the Valuation Time and Valuation Date as the Expiration Time and Expiration Date)
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Full text of Section 3
Article 3 Exercise of Options
Section 3.1. General Terms Relating to Exercise.
- 3.1(a) Exercise Period. “Exercise Period” means, unless otherwise specified in the related Confirmation,
- (i) in respect of an American Option, all Scheduled Trading Days from, and including, the Commencement Date to, and including, the Expiration Date between 9:00 a.m. and the Latest Exercise Time,
- (ii) in respect of a Bermuda Option, each Potential Exercise Date between 9:00 a.m. and the Latest Exercise Time and the Expiration Date between 9:00 a.m. and the Latest Exercise Time, and
- (iii) in respect of a European Option, the Expiration Date between 9:00 a.m. and the Expiration Time.
- All times specified in this paragraph shall be, unless otherwise specified in the related Confirmation, local time in the location specified in the related Confirmation for receipt by Seller of notices relating to the Transaction or, where an agent is designated by Seller for the purpose of receiving notice of exercise (“Seller’s Agent”), local time in the specified location of Seller’s Agent or, where no such location is specified in the related Confirmation, local time in the jurisdiction of the Exchange.
- 3.1(b) Exercise Date. “Exercise Date” means, in respect of an Option Transaction, the Scheduled Trading Day during the Exercise Period on which such Option is, or is deemed to be, exercised.
- 3.1(c) Potential Exercise Date. “Potential Exercise Date” means, in respect of a Bermuda Option, each date specified as such in the related Confirmation (or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day), unless such date is a Disrupted Day due to the occurrence of an event giving rise to a Disrupted Day prior to the Latest Exercise Time on such date. If such date is a Disrupted Day due to the occurrence of such an event, then the Potential Exercise Date shall be the first succeeding Scheduled Trading Day that is not a Disrupted Day, unless each of the eight Scheduled Trading Days immediately following the original date that, but for the occurrence of a Disrupted Day, would have been the Potential Exercise Date is a Disrupted Day. In that case, that eighth Scheduled Trading Day shall be deemed to be the Potential Exercise Date, notwithstanding the fact that such day is a Disrupted Day. Notwithstanding the foregoing, if an Option Transaction is exercised on a Scheduled Trading Day that would have been a Potential Exercise Date prior to the occurrence of an event giving rise to a Disrupted Day, such Scheduled Trading Day shall be deemed to be the Potential Exercise Date for the purpose of determining whether an Exercise Date has occurred during the Exercise Period.
- 3.1(d) Latest Exercise Time. “Latest Exercise Time” means, in respect of an Option Transaction, the time specified as such in the related Confirmation, provided that on the Expiration Date the Latest Exercise Time shall be the Expiration Time. If no such time is specified, the Latest Exercise Time shall be the Expiration Time.
- 3.1(e) Expiration Time. “Expiration Time” means, in respect of an Option Transaction, the time specified as such in the related Confirmation. If no such time is specified, the Expiration Time shall be the Valuation Time.
- 3.1(f) Expiration Date. “Expiration Date” means, in respect of an Option Transaction, the date specified as such in the related Confirmation (or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day), unless such date is a Disrupted Day due to the occurrence of an event giving rise to a Disrupted Day prior to the Latest Exercise Time on such date. If such date is a Disrupted Day due to the occurrence of such an event, then the Expiration Date shall be the first succeeding Scheduled Trading Day that is not a Disrupted Day, unless each of the eight Scheduled Trading Days immediately following the original date that, but for the occurrence of a Disrupted Day, would have been the Expiration Date is a Disrupted Day. In that case, that eighth Scheduled Trading Day shall be deemed to be the Expiration Date, notwithstanding the fact that such day is a Disrupted Day. Notwithstanding the foregoing, if an Option Transaction is exercised on a Scheduled Trading Day that would have been an Expiration Date but for the occurrence of an event giving rise to a Disrupted Day, such Scheduled Trading Day shall be deemed to be the Expiration Date for the purpose of determining whether an Exercise Date has occurred during the Exercise Period.
Section 3.2. Procedure for Exercise. Except when Automatic Exercise applies, Buyer must give irrevocable notice (which will be oral telephonic notice if practicable, and otherwise written notice) during the Exercise Period to Seller, or, if applicable, Seller’s Agent, of its exercise of an Option. In the case of an American Option, if the notice of exercise is given after the Latest Exercise Time on a Scheduled Trading Day, then that notice will be deemed given on the next following Scheduled Trading Day, if any, in the Exercise Period. In the case of an American Option or a Bermuda Option to which Multiple Exercise is applicable, Buyer must specify in the notice the number of Options being exercised on the relevant Exercise Date. Buyer will execute and deliver to Seller, or, if applicable, Seller’s Agent, a written confirmation confirming the substance of any telephonic notice within one Scheduled Trading Day of that notice. Without limiting the obligation of Buyer to provide such written confirmation, failure by Buyer to provide it will not affect the validity of the telephonic notice.
Section 3.3. Multiple Exercise.
- 3.3(a) If “Multiple Exercise” is specified to be applicable to an American Option or a Bermuda Option, Buyer may exercise all or less than all the unexercised Options on one or more Scheduled Trading Days during the Exercise Period but (except as set forth below) on any such Scheduled Trading Day may not exercise less than the Minimum Number of Options or more than the Maximum Number of Options and, if a number is specified as the “Integral Multiple” in the related Confirmation, the number of exercised Options must be equal to, or be an integral multiple of, the number so specified. Except as set forth below, any attempt to exercise on any such Scheduled Trading Day:
- (i) more than the Maximum Number of Options will be deemed to be an exercise of the Maximum Number of Options (the number of Options exceeding the Maximum Number of Options being deemed to remain unexercised);
- (ii) less than the Minimum Number of Options will be ineffective; and
- (iii) an amount of Options not equal to or an integral multiple of the Integral Multiple will be deemed to be an exercise of a number of Options equal to the next lowest integral multiple of the Integral Multiple (the number of Options exceeding that number being deemed to remain unexercised).
- 3.3(b) Notwithstanding the foregoing, on any such Scheduled Trading Day Buyer may exercise any number of Options that does not exceed the Maximum Number of Options if it exercises all the Options remaining unexercised. On the Expiration Date, Buyer may exercise any number of Options remaining unexercised.
- 3.3(c) “Minimum Number of Options” means, in respect of an Option Transaction to which Multiple Exercise is applicable, the number specified as such in the related Confirmation.
- 3.3(d) “Maximum Number of Options” means, in respect of an Option Transaction to which Multiple Exercise is applicable, the number specified as such in the related Confirmation.
Section 3.4. Automatic Exercise. If “Automatic Exercise” is specified to be applicable to an Option Transaction, then each Option not previously exercised under that Option Transaction will be deemed to be automatically exercised:
- 3.4(a) where “Cash Settlement” is applicable, at the Expiration Time on the Expiration Date unless Buyer notifies Seller or, if applicable, Seller’s Agent (by telephone or in writing) prior to the Expiration Time on the Expiration Date that it does not wish Automatic Exercise to occur, in which case Automatic Exercise will not apply; and
- 3.4(b) where “Physical Settlement” is applicable, at the Expiration Time on the Expiration Date if at such time the Option is In-the-Money, as determined by the Calculation Agent, unless Buyer notifies Seller or, if applicable, Seller’s Agent (by telephone or in writing) prior to the Expiration Time on the Expiration Date that it does not wish Automatic Exercise to occur, in which case Automatic Exercise will not apply.
- 3.4(c) “In-the-Money” means
- (i) in respect of a Call, that (A) the Reference Price is equal to or greater than the price for a Share at which any Related Exchange would automatically exercise a Physically-settled option with the Strike Price relating to such Share, or (B) if no options relating to such Share are listed on any Related Exchange or no Related Exchange is specified in the related Confirmation, the Reference Price is greater than the Strike Price; and
- (ii) in respect of a Put, that (A) the Reference Price is equal to or less than the price for a Share at which any Related Exchange would automatically exercise a Physically-settled option with the Strike Price relating to such Share, or (B) if no options relating to such Share are listed on any Related Exchange or no Related Exchange is specified in the related Confirmation, the Reference Price is less than the Strike Price.
- 3.4(d) “Reference Price” means the price per Share or amount per Basket determined as provided in the related Confirmation as of the Expiration Time on the Expiration Date or, if no means of determining such price or amount are so provided, in respect of a Share Option Transaction, the Relevant Price of the Share (for which purpose the Valuation Time and the Valuation Date will be the Expiration Time and the Expiration Date, respectively) and, in respect of a Share Basket Option Transaction, the sum of the values calculated as of the Expiration Time on the Expiration Date for the Shares of each Issuer as the product of the Relevant Price of such Share (for which purpose the Valuation Time and the Valuation Date will be the Expiration Time and the Expiration Date, respectively) and the relevant Number of Shares comprised in the Basket.
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