Extraordinary Event - Equity Derivatives Provision

2002 ISDA Equity Derivatives Definitions A Jolly Contrarian owner’s manual™ Resources and navigation Resources About the Equity Derivatives Definitions | (full wikitext) | (nutshell wikitext) 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 ► Synthetic Prime Brokerage Section 12.1(a) in a Nutshell™ Use at your own risk, campers! 12.1(a) “Extraordinary Event” means a Merger Event, Tender Offer, Index Adjustment Event, Nationalization, Insolvency, Delisting or Additional Disruption Event. view template Full text of Section 12.1(a) 12.1(a) “Extraordinary Event” means a Merger Event, Tender Offer, Index Adjustment Event, Nationalization, Insolvency, Delisting or any applicable Additional Disruption Event, as the case may be. view template Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

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Section 12.1. General Provisions Relating to Extraordinary Events

12.1(a). “Extraordinary Event”

12.1(b). “Merger Event”

12.1(c). “Merger Date”

12.1(d). “Tender Offer”

12.1(e). “Tender Offer Date”

12.1(f). “Share-for-Share”

12.1(g). “Share-for-Other”

12.1(h). “Share-for-Combined”

12.1(i). “New Shares”

12.1(j). “Other Consideration”

12.1(k). “Combined Consideration”

12.1(l). “Announcement Date”

12.1(m). “Implied Volatility”

12.1(n). “Affected Shares”

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Summary

Break these “Extraordinary Events” into four categories:

• Corporate actions on Issuers: (generally) benign but unscheduled matters of corporate structure concerning the management of specific underlying Shares, that change the economic proposition represented by those Shares, and not the equity derivative contract. So: Merger Events and Tender Offers;
• Index adjustments: Equivalent measures that relate to an underlying Index - collectively Index Adjustment Events. So:

• Index Modification: Changes in the calculation methodology for the Index
• Index Cancellation: Where Indexes are discontinued with replacement;
• Index Disruption: disruption in the calculation and publication of Index values;

• Negative events affecting Issuers: Nationalizations, Insolvency, Delisting of underlying Issuers;
• Additional Disruption Events: Events which directly impair performance and risk management of the Transaction itself. These often cross over with market- and Issuer-dependent events above, but the emphasis here is their direct impact on the parties’ abilities to perform and hedge the derivative Transaction itself. So:

• The Triple Cocktail: The Triple Cocktail of Change in Law, Hedging Disruption and Increased Cost of Hedging;
• Stock borrow events: Specific issues relating to short-selling (Loss of Stock Borrow and Increased Cost of Stock Borrow); and
• Random ones that aren’t needed or used: Two random ones that don’t brilliantly fit with this theory, and which people tend to disapply — possibly for that exact reason, but they are fairly well covered by the Triple Cocktail anyway — Failure to Deliver under the Transaction on account of illiquidity and, even more randomly, Insolvency Filing.
  

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See also

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