Insolvency Filing - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
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Paragraph 12.9(a)(iv) in a Nutshell

Use at your own risk, campers!
12.9(a)(iv)Insolvency Filing” means that the Issuer commences or agrees to insolvency proceedings or a winding-up petition (or has one instituted against it by a regulator or insolvency administrator). Non-consensual insolvency action taken by creditors is not an Insolvency Filing;

Full text of Paragraph 12.9(a)(iv)

12.9(a)(iv)Insolvency Filing” means that the Issuer institutes or has instituted against it by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organization or the jurisdiction of its head or home office, or it consents to a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official or it consents to such a petition, provided that proceedings instituted or petitions presented by creditors and not consented to by the Issuer shall not be deemed an Insolvency Filing;

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Section 12.9(a): The actual Additional Disruption Events

12.9(a)(i) Additional Disruption Event
12.9(a)(ii) Change in Law
12.9(a)(iii) Failure to Deliver
12.9(a)(iv) Insolvency Filing
12.9(a)(v) Hedging Disruption
12.9(a)(vi) Increased Cost of Hedging
12.9(a)(vii) Loss of Stock Borrow
12.9(a)(viii) Increased Cost of Stock Borrow


One tends to disapply this and instead rely on the famous Triple Cocktail so somewhat academic, but if you are minded to include it, note that an Insolvency Filing is wider than “Insolvency” Section 12.6(a)(ii). Also it differs from Bankruptcy in the ISDA Master Agreement, in that it has no grace period and cannot be triggered by creditor petitions etc.

As with Change in Law, an Insolvency Filing allows either party to terminate the Transaction upon at least two Scheduled Trading Days’ notice, whereupon the Transaction will terminate and the Determining Party will determine the Cancellation Amount.


General discussion

You may be forgiven for wondering what the difference is between “Insolvency”, being the normal Extraordinary Event from Section 12.6, and the Additional Disruption Event called “Insolvency Filing”.

It’s a good question that, we dare say, even ISDA’s crack drafting squad™ would struggle to capably answer, but the reality is that this people tend to disapply Insolvency Filing, as it is covered by other Additional Disruption Events so Insolvency is the important one.


See also