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| {{eqderivanat|12.9(a)(ix)}} | | {{manual|DEQ|2002|12.9(a)(ix)|Section|12.9(a)(ix)|short}} |
| [[File:Hedging_Party.PNG|600px|thumb|right|The conceptual confusion caused by physical hedging not being done by the counterparty in person. And don’t even ''start'' about the {{eqderivprov|Determining Party}}]]
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| Relevant in the context of {{eqderivprov|Additional Disruption Events}} and [[Hedging Disruption - Equity Derivatives Provision|hedging disruption]], the {{eqderivprov|Hedging Party}} will be the entity actually carrying out the [[hedging]] activity, if it isn't the party to the {{isdama}} itself. If no Hedging Party is specified, it defaults to the parties themselves.
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| Note also the related concept of the {{eqderivprov|Determining Party}}, who is the person calculating the [[replacement cost]] of the {{eqderivprov|Transaction}} following an Extraordinary Event (e.g. termination following a {{eqderivprov|Hedging Disruption}}, {{eqderivprov|Change in Law}} or {{eqderivprov|Increased Cost of Hedging}}).
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| In this case there will be a string of intermediate hedging contracts - usually derivatives - but these may not behave in exactly the way that a real underlier would (in terms of market disruption, tax events, liquidity etc). and what the Equity Derivatives Definitions are meant to do is pass on the risk associated with the actual underlier.
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| So for example in the example below Party A provide exposure to client, hedges that with a equity TRS to Hedging Party, which goes long the physical share. Now the Hedging Party, not Party A, has the risk of the physical assets. If there is a market disruption, or a tax event on the physical hedge this is reflected in the price that Hedging Party will have to pay to Party A, but it isn’t a market disruption or tax event ''directly'' on Party A itself (and in fact might not be – Party A might be domiciled in a jurisdiction benefitting from a different tax treaty with the jurisdiction of the underlier, for example). So in this case we need to reference the position as held by a person other than the counterparty to the swap.
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| Note also that “{{eqderivprov|Non-Hedging Party}}” definition somewhat assumes that the {{eqderivprov|Hedging Party}} will indeed be the actual counterparty to the {{isdaprov|Transaction}}.
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| {{Seealso}}
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| See, for example, definitions:
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| *{{eqderivprov|Determining Party}},
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| *{{eqderivprov|Non-Hedging Party}},
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| *{{eqderivprov|Hedging Disruption}},
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| *{{eqderivprov|Increased Cost of Hedging}},
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| *{{eqderivprov|Loss of Stock Borrow}},
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| *{{eqderivprov|Increased Cost of Stock Borrow}},
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| *{{eqderivprov|Hedging Shares}},
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| *{{eqderivprov|Lending Party}}.
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