Transaction - Equity Derivatives Provision

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

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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 Transactions in a Nutshell
Use at your own risk, campers!

1.1. “Transaction” means an Option Transaction, Forward Transaction, Equity Swap Transaction or other transaction which incorporates these Definitions.
1.2. “Option Transaction” means an OTC equity option transaction:

(a) on a single index (an “Index Option Transaction”)
(b) on a single share (a “Share Option Transaction”)
(c) on a basket of indices (an “Index Basket Option Transaction”) or
(d) on a basket of shares (a “Share Basket Option Transaction”).

1.3. A “Forward Transaction” means an OTC equity forward transaction:

(a) on a single index (an “Index Forward Transaction”);
(b) on a single security (a “Share Forward Transaction”);
(c) on a basket of indices (an “Index Basket Forward Transaction); or
(d) on a basket of securities (a “Share Basket Forward Transaction”).

1.4. “Equity Swap Transaction” means an Index Swap Transaction, a Share Swap Transaction, an Index Basket Swap Transaction or a Share Basket Swap Transaction.
1.5. An “Index Transaction” means an Index Option Transaction, Index Forward Transaction or Index Swap Transaction.
1.6. “Share Transaction” means any Transaction referencing a single Share, other than a Share Basket Transaction.
1.7. “Index Basket Transaction” means an Index Basket Option Transaction, Index Basket Forward Transaction or Index Basket Swap Transaction.
1.8. “Share Basket Transaction” means a Share Basket Option Transaction, Share Basket Forward Transaction or Share Basket Swap Transaction.
1.9. “Basket Option Transaction” means an Index Basket Option Transaction or Share Basket Option Transaction.
1.10. “Basket Forward Transaction” means an Index Basket Forward Transaction or Share Basket Forward Transaction.
1.11. “Basket Swap Transaction” means an Index Basket Swap Transaction or Share Basket Swap Transaction.
1.12. “Confirmation” means, for a Transaction, the confirmations exchanged between the parties which, taken together, evidence the terms of a Transaction.
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Full text of Section Transactions

Section 1.1. Transaction. “Transaction” means an Option Transaction, a Forward Transaction, an Equity Swap Transaction or any other transaction in relation to which the related Confirmation incorporates these Definitions.
Section 1.2. Option Transaction. “Option Transaction” means a transaction that is (a) an over-the-counter (“OTC”) equity option transaction relating to a single index (an “Index Option Transaction”), (b) an OTC equity option transaction relating to a single share or other security (a “Share Option Transaction”), (c) an OTC equity option transaction relating to a basket of indices (an “Index Basket Option Transaction”) or (d) an OTC equity option transaction relating to a basket of shares or other securities (a “Share Basket Option Transaction”).
Section 1.3. Forward Transaction. “Forward Transaction” means a transaction that is (a) an OTC equity forward transaction relating to a single index (an “Index Forward Transaction”), (b) an OTC equity forward transaction relating to a single share or other security (a “Share Forward Transaction”), (c) an OTC equity forward transaction relating to a basket of indices (an “Index Basket Forward Transaction”) or (d) an OTC equity forward transaction relating to a basket of shares or other securities (a “Share Basket Forward Transaction”).
Section 1.4. Equity Swap Transaction. “Equity Swap Transaction” means a transaction that is (a) an OTC equity swap transaction relating to a single index (an “Index Swap Transaction”), (b) an OTC equity swap transaction relating to a single share or other security (a “Share Swap Transaction”), (c) an OTC equity swap transaction relating to a basket of indices (an “Index Basket Swap Transaction”) or (d) an OTC equity swap transaction relating to a basket of shares or other securities (a “Share Basket Swap Transaction”).
Section 1.5. Index Transaction. “Index Transaction” means an Index Option Transaction, Index Forward Transaction or Index Swap Transaction.
Section 1.6. Share Transaction. “Share Transaction” means a Share Option Transaction, Share Forward Transaction or Share Swap Transaction.
Section 1.7. Index Basket Transaction. “Index Basket Transaction” means an Index Basket Option Transaction, Index Basket Forward Transaction or Index Basket Swap Transaction.
Section 1.8. Share Basket Transaction. “Share Basket Transaction” means a Share Basket Option Transaction, Share Basket Forward Transaction or Share Basket Swap Transaction.
Section 1.9. Basket Option Transaction. “Basket Option Transaction” means an Index Basket Option Transaction or Share Basket Option Transaction.
Section 1.10. Basket Forward Transaction. “Basket Forward Transaction” means an Index Basket Forward Transaction or Share Basket Forward Transaction.
Section 1.11. Basket Swap Transaction. “Basket Swap Transaction” means an Index Basket Swap Transaction or Share Basket Swap Transaction.
Section 1.12. Confirmation. “Confirmation” means, in respect of a Transaction, one or more documents and other confirming evidence exchanged between the parties or otherwise effective, which when taken together confirm or evidence all of the terms of a Transaction.
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Content and comparisons

A JC-curated sub-division of the General Definitions section. We sub-group the Section 1 definitions into the following subgroups:

This is the Transactions section: the first eleven paragraphs of the 2002 ISDA Equity Derivatives Definitions — twelve, if you include the Confirmations definition which doesn’t really belong anywhere else —set out all the types of Transaction you can have. These break down into:

And can be on a single Index or Share or a Basket of Indices or Shares. All are documented under Confirmations, though with the onset of Master Confirmation Agreements, synthetic prime brokerage and so on, these are no longer the old-fashioned epistles they once were.

1.1. Transaction
1.2. Option Transaction
1.3. Forward Transaction
1.4. Equity Swap Transaction
1.5. Index Transaction
1.6. Share Transaction
1.7. Index Basket Transaction
1.8. Share Basket Transaction
1.9. Basket Option Transaction
1.10. Basket Forward Transaction
1.11. Basket Swap Transaction
1.12. Confirmation

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Summary

Underlier”?

There isn’t a generic catch-all term for the underlier of an Equity Derivatives Transaction. This is a pity, since “Index, Share or Basket as the case may be” isn’t the most elegant expression in the annals of legal literature. You might have used “Instrument” or even “Underlier” might do.

Underlier” is a JC-spawned confection, and we do use it from time to time, when our patience with ISDA’s crack drafting squad™ and its leaden drafting becomes as shiny, thin and translucent as the seat of an old pair of suit trousers.

Equity Swap Transactions

A handy catch-all term to make your confirmation somehow legible, although to use it you must forego many, many juicy as the case may bes. Equity Swap Transactions break into two main categories:

Share Transactions

A nice way of bunching up transactions relating to Shares so you don’t have to say “Share Swap Transaction, Share Option Transaction or Share Forward Transaction, as the case may be”, however much your inner “analyst” may compel you to do so. And you have to admit, there is a dirty satisfaction in doing so, isn’t there?

But not Share Basket Transactions, you understand. Just single Shares.

Confirmations

Now back in the day counterpartiers exchasnged long-form conformations starting out Dear Ladies and Gentlemen, and cleaved to a long and tedious form, but in Equity Derivatives world it quickly became apparent this was quite the waste of trees: equity derivatives tend to be vanilla, delta-one and traded in high volumes.

Thus ISDA-sponsored master confirmations quickly emerged, allowing parties to agree general terms up front, so the process of confirming was nothing more than a spreadsheet or xml file exchanged at the end of each day.

In the prime brokerage space, the parties developed their own synthetic equity swap master conformations — somewhat more bespoke than the ISDA MCs, with a further level of standardisations of currencies and tenors, designed to replicate cash equity trading as nearly as possible.

All of these things count as Confirmations. No doubt some bright spark will try to do something one day on a blockchain.
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See also

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References