Final Price - Equity Derivatives Provision: Difference between revisions

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{{manual|DEQ|2002|5.9|Section||short}}
Note that {{eqderivprov|Final Price}} isn't necessary the ''final'' {{eqderivprov|Final Price}}: you determine a fresh {{eqderivprov|Final Price}} on every {{eqderivprov|Valuation Date}}, as of the {{eqderivprov|Valuation Time}}, and they feed into the {{eqderivprov|Cash Settlement}} (or {{eqderivprov|Equity Notional Reset}}) process, whereby one party pays out the movement price of the underlier over the period since the last {{eqderivprov|Valuation Date}}.
 
Thus,  {{eqderivprov|Final Price}} for today’s {{eqderivprov|Valuation Date}} becomes the {{eqderivprov|Initial Price}} for the ''next'' {{eqderivprov|Valuation Date}}, and so on and so on — yesterday’s rooster is today’s feather duster so to say.
 
Only on the ''final'' {{eqderivprov|Final Price}} does the {{eqderivprov|Transaction}} terminate and that contingency — you know, calling it quits and wrapping the whole thing up — isn’t addressed in any particular way in the definitions booklet, the presumption being that you will just follow the same procedure as you would for any other Valuation Date on the last one. This might give your US Tax guy the heebie-jeebies, be warned, as {{sex|he}} will want [[VWAP]], or some kind of [[Hypothetical broker-dealer|hypothetical broker dealer]] referenced in the very last one. Dash cold water in his face if so, and tell him to ''get it together, man''.
===[[Synthetic prime brokerage]]===
Where you are doing [[synthetic equity swap]]s, the {{eqderivprov|Final Price}} on the {{isdadefsprov|Termination Date}} — the very one which gives your [[Tax lawyer|tax guy]] the heebie-jeebies — is mainly of academic interest, as it will only be a jowl-slappingly fortuitous coincidence if a client happens to go off risk at exactly the scheduled {{isdadefsprov|Termination Date}}.
 
In fact, a [[synthetic equity swap]] is an indefinite arrangement — it is replicating cash [[prime brokerage]], remember, where a fellow holds (or shorts) a security at {{sex|her}} own pleasure, so to speak — so the client can terminate at any time, and if it doesn’t terminate by the scheduled {{isdadefsprov|Termination Date}} she will typically want to roll the position (if she can<ref>There are complicated [[US Tax]] rules at play here</ref>) without realising a gain or loss. Thus the {{isdadefsprov|Termination Date}} is fairly arbitrary, existing really only to avoid syntax errors in a booking system which will insist on you inputting one, or to resolve the unspoken anguish of your financial reporting folk who may otherwise fear you have an undated exposure to the underlying security<ref>Not, in fact true, as the [[broker-dealer]] will almost certainly have a right to terminate on (a month or more’s) notice, but do not expect this to placate a [[Financial reporting|financial controller]].</ref>.
{{Equity swaps versus forwards‎}}
{{vwapadjustment}}
{{Seealso}}
*[[Volume Weighted Average Price]] ([[VWAP]])
*{{eqderivprov|Relevant Price}}
{{ref}}

Revision as of 17:44, 10 June 2020

2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™

Resources and navigation

Section 5.9 in a Nutshell™

Use at your own risk, campers!
5.9. “Final Price” means, for each Valuation Date:
5.9(a) Index Swap Transactions: the Index level at the Valuation Time on the Valuation Date;
5.9(b) Share Swap Transactions: the price per Share at the Valuation Time on the Valuation Date or, if no means for determining the Final Price are provided in the Confirmation:
(i) For “open outcry” Exchanges that have a price as of the Valuation Time, the Exchange’s official price per Share at the Valuation Time on the Valuation Date; and
(ii) For Exchanges that are dealer quotation systems, the mid-point of the highest bid and lowest ask prices quoted at the Valuation Time on the Valuation Date (ignoring quotations that “lock” or “cross” the system);
5.9(c) Index Basket Swap Transactions: The weighted sum of the Relevant Prices for the Indices in the Basket; and
5.9(d) Share Basket Swap Transactions: The sum of the values for the Shares of each Issuer as the product of
(i) the Relevant Price of the Share and
(ii) the relevant Number of Shares in the Basket.

Full text of Section 5.9

Section 5.9. Final Price. “Final Price” means, in respect of each Valuation Date:
5.9(a) in respect of an Index Swap Transaction, the level of the Index determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or, if no means for determining the Final Price are so provided, the level of the Index as of the Valuation Time on the Valuation Date;
5.9(b) in respect of a Share Swap Transaction, the price per Share determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or, if no means for determining the Final Price are so provided:
(i) in respect of any Share for which the Exchange is an auction or “open outcry” exchange that has a price as of the Valuation Time at which any trade can be submitted for execution, the Final Price shall be the price per Share as of the Valuation Time on the Valuation Date, as reported in the official real-time price dissemination mechanism for such Exchange; and
(ii) in respect of any Share for which the Exchange is a dealer exchange or dealer quotation system, the Final Price shall be the mid-point of the highest bid and lowest ask prices quoted as of the Valuation Time on the Valuation Date (or the last such prices quoted immediately before the Valuation Time), without regard to quotations that “lock” or “cross” the dealer exchange or dealer quotation system;
5.9(c) in respect of an Index Basket Swap Transaction, an amount for the Basket determined by the Calculation Agent as provided in the related Confirmation as of the relevant Valuation Time(s) on the Valuation Date or, if no means for determining the Final Price are so provided, an amount for the Basket equal to the sum of the Relevant Prices (weighted or adjusted in relation to each Index as provided in the related Confirmation) for the Indices comprised in the Basket; and
5.9(d) in respect of a Share Basket Swap Transaction, an amount for the Basket determined by the Calculation Agent as provided in the related Confirmation as of the relevant Valuation Time(s) on the Valuation Date or, if no means for determining the Final Price are so provided, an amount for the Basket equal to the sum of the values for the Shares of each Issuer as the product of
(i) the Relevant Price of such Share and
(ii) the relevant Number of Shares comprised in the Basket.


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References

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