Failure to Deliver - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions

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12.9(a)(iii) in a Nutshell

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12.9(a)(iii) in all its glory

12.9(a)(iii)Failure to Deliver” means the failure of a party to deliver, when due, the relevant Shares under that Transaction, where such failure to deliver is due to illiquidity in the market for such Shares;

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Section 12.9(a): The actual Additional Disruption Events

12.9(a)(i) Additional Disruption Event
12.9(a)(ii) Change in Law
12.9(a)(iii) Failure to Deliver
12.9(a)(iv) Insolvency Filing
12.9(a)(v) Hedging Disruption
12.9(a)(vi) Increased Cost of Hedging
12.9(a)(vii) Loss of Stock Borrow
12.9(a)(viii) Increased Cost of Stock Borrow



Not generally stipulated as an Additional Disruption Event because firstly it would only be relevant in a physically-settled equity swap, and for a host of reasons taking physical settlement at the conclusion of a synthetic transaction, whose point is partly to avoid a physical exposure, is a bit of a contradiction in terms. Now where you do, for reasons best known to yourself, elect physical settlement this provision allows the innocent party to buy-in and charge any cost differential to the failing party.

You may want to head over to Consequences of Failure to Deliver under 12.9(b)(ii), where you will discover that ISDA’s crack drafting squad™ have ploughed their own long, lonely, weird furrow about how to resolve settlement failures instead of copying what the cash equity markets and stock lending markets do. They’re fun like that, are the ’squad.

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  • The JC’s famous Nutshell summary of this clause
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  • A read across to the stock-lending and cash equities markets deal with physical settlement disruptions, which happen a lot
  • A tentative hypothesis as to why Failure to Deliver is routinely disapplied in synthetic equity derivatives master confirmations

See also