Forward Transactions - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
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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

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Section 4 in a Nutshell
Use at your own risk, campers!

4 General Terms Relating to Forward Transactions
4.1. Definitions for Forward Transactions. For Forward Transactions, the following definitions apply:

4.1(a) Forward Price: For any kind of Forward Transaction, the Forward Price will be specified in the Confirmation.
4.1(b)Forward Floor Price” means the level of the Underlier, specified as such in the Confirmation.
4.1(c)Forward Cap Price” means the level of the Underlier specified as such in the related Confirmation.

4.2. Terms Relating to Prepayment.

4.2(a) Payment of the Prepayment Amount. For a Forward Transaction to which “Prepayment” applies, Buyer must pay Seller the Prepayment Amount on the Prepayment Date.
4.2(b)Prepayment Amount” will be defined in the Confirmation.
4.2(c)Prepayment Date” will be the date specified in the Confirmation, or, if it is not a Currency Business Day, the following Currency Business Day or, if not specified, the date one Settlement Cycle following the Trade Date, or if it is not an Exchange Business Day that is a Currency Business Day, the next following Exchange Business Day that is.

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Full text of Section 4

Article 4 General Terms Relating to Forward Transactions
Section 4.1. Certain Definitions Relating to Forward Transactions. When used in respect of a Forward Transaction, the following terms have the indicated meanings:

4.1(a) Forward Price. “Forward Price” means:
(i) in respect of an Index Forward Transaction, the level of the relevant Index specified or otherwise determined as provided in the related Confirmation;
(ii) in respect of a Share Forward Transaction, the price per Share specified or otherwise determined as provided in the related Confirmation;
(iii) in respect of an Index Basket Forward Transaction, the amount per Basket specified or otherwise determined as provided in the related Confirmation; and
(iv) in respect of a Share Basket Forward Transaction, the amount per Basket specified or otherwise determined as provided in the related Confirmation.
4.1(b) Forward Floor Price. “Forward Floor Price” means the level of the Index, price per Share or amount per Basket, as applicable, specified or otherwise determined as provided in the related Confirmation.
4.1(c) Forward Cap Price. “Forward Cap Price” means the level of the Index, price per Share or amount per Basket, as applicable, specified or otherwise determined as provided in the related Confirmation.

Section 4.2. Terms Relating to Prepayment.

4.2(a) Payment of the Prepayment Amount. In respect of a Forward Transaction to which “Prepayment” is specified as applicable in the related Confirmation, Buyer shall pay Seller the Prepayment Amount on the Prepayment Date.
4.2(b) Prepayment Amount. “Prepayment Amount” means the amount specified or otherwise determined as provided in the related Confirmation.
4.2(c) Prepayment Date. “Prepayment Date” means the date specified or otherwise determined as provided in the related Confirmation, or, if such date is not a Currency Business Day, the next following Currency Business Day. If the Prepayment Date is not specified in the related Confirmation, the Prepayment Date will fall on the date that is one Settlement Cycle following the Trade Date, or if such date is not an Exchange Business Day that is a Currency Business Day, the next following Exchange Business Day that is a Currency Business Day.

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Content and comparisons

Article 4 General Terms Relating to Forward Transactions

Section 4.1. Certain Definitions Relating to Forward Transactions

4.1(a) Forward Price
4.1(b) Forward Floor Price
4.1(c) Forward Cap Price

Section 4.2. Terms Relating to Prepayment

4.2(a) Payment of the Prepayment Amount
4.2(b) Prepayment Amount
4.2(c) Prepayment Date

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Summary

If, having read the whole of Article 4, you are still feeling none the wiser about Forward Transactions, you are in good company, so fear not.

Definitions: One of the more pointless chapters in a definitions book well endowed with them, the definitions from Chapter 4 basically amount to “look in the Confirmation”.

Prepayment Terms: Section 4.2 is another one where the normally assiduous ISDA drafting committee really did seem to be phoning it in. What should one do if the related Confirmation says nothing at all about Prepayment? We treat that as having specified it as “inapplicable”.
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See also

More enlightening is the Cash Settlement terms or Article 8 (as to which see Article 8.4 (Cash Settlement of Forward Transactions) and 8.5 (Forward Cash Settlement Amount) an Article 9 about Physical Settlement (there see Article 9.2, 9.4, 9.5 and 9.6).
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References