Hedging Disruption - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions

A Jolly Contrarian owner’s manual™

12.9(a)(v) in a Nutshell

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12.9(a)(v) in all its glory

12.9(a)(v)Hedging Disruption” means that the Hedging Party is unable, after using commercially reasonable efforts, to (A) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the equity price risk of entering into and performing its obligations with respect to the relevant Transaction, or (B) realize, recover or remit the proceeds of any such transaction(s) or asset(s);

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Overview

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This is what counts as a Hedging Disruption. To find out what happens when you have a Hedging Disruption, see the Consequences of Hedging Disruption at Section 12.9(b)(iii).

Summary

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It isn’t brilliantly worded, but the spirit is clear: it is not just that your particular hedge that you actually had on went kaput, but that you could find any reasonably suitable replacement for it. You can’t be picky. Okay, the equities market might be locked up, but what about futures? I grant you, if the underlying market is disrupted, it’s likely the listed futures market will be too, but you never know. How about ADRs or GDRs?

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  • The JC’s famous Nutshell summary of this clause
  • What of informal action by a regulator?
  • The bogus “why should I pay your hedging costs? I have no control over them” argument
  • Commentary on other pernickety amendments
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See also

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References