Extraordinary Dividend - Equity Derivatives Provision

Template:Eqderivsnap You would be forgiven for thinking this definition a little circular, especially if you haven't specified what an Extraordinary Dividend will be in the Confirmation. This is because the ISDA drafting committee felt it was all a bit hard. “Because,” said they, “of the difficulties of determining in advance in any formulaic way what would constitute an Extraordinary Dividend, the details of this are left to parties to state in their Confirmations.”

Of course, the point about an Extraordinary Dividend is that it is extraordinary. Out of the ordinary; off the beaten track; beyond the mortal comprehension, and powers of prediction, not just of the sainted ISDA drafting committee, but of those poor saps, too, grinding out your equity derivative trade confirms in some mice-invested operations depot in suburban Almaty. How are they supposed to know what an Extraordinary Dividend is?

But look on the bright side: “Dividend” is not defined in the 2002 ISDA Equity Derivatives Definitions at all!

Anyway, the definition boils down, as best as I can fathom, to this:

“An Extraordinary Dividend is whatever the Calculation Agent jolly well says it is.”

Which, in its way, is fine, especially if you happen to be acting for the Calculation Agent, but if you are the Calculation Agent and the question before you is “is this really weird thing that’s just happened to the voting stock of some obscure trucking company in Panama an Extraordinary Dividend or not?” you might feel anchored a little high up the beach as the tide goes out.

Look, I don’t make the rules, folks.