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2021 ISDA Interest Rate Derivatives Definitions
A Jolly Contrarian owner’s manual™
12.6.4 in a Nutshell™
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| 12.6.4 in all its glory
12.6.4 Multiple Exercise. If “ Multiple Exercise” applies to an American style or a Bermuda style Option Transaction or an American style or a Bermuda style Optional Early Termination Right, the rights under that Transaction may be exercised in accordance with this Section 12.6.4.
- (i) Full or Partial Exercise. The Buyer may exercise its rights in respect of all or less than all unexercised Notional Amount of the Underlying Transaction or the Transaction containing the rights, as applicable, on one or more days in the Exercise Period.
- (ii) Integral Multiple. Subject to paragraph (iv) below, if an amount is specified as the “Integral Multiple” in the Confirmation:
- (a) the Notional Amount in respect of which the exercise takes place must be equal to, or be an integral multiple of, the amount specified; and
- (b) an attempt to exercise on any occasion option rights in respect of a Notional Amount not equal to an integral multiple of, the Integral Multiple will be deemed to be an exercise of rights in respect of a Notional Amount equal to the next lower integral multiple of the Integral Multiple (and in respect of any remaining Notional Amount the rights shall remain unexercised).
- (iii) Maximum Notional Amount and Minimum Notional Amount. Subject to paragraph (iv) below, if a Maximum Notional Amount or Minimum Notional Amount is specified in the Confirmation, the Buyer may not exercise rights in respect of less than the Minimum Notional Amount or more than the Maximum Notional Amount. An attempt to exercise on any occasion option rights in respect of:
- (a) more than the Maximum Notional Amount shall be deemed to be an exercise of rights in respect of the Maximum Notional Amount (and in respect of any remaining Notional Amount the rights shall remain unexercised); and
- (b) less than the Minimum Notional Amount will be ineffective.
- (iv) Exercise of remaining Notional Amount.
- (a) On any day in the Exercise Period other than the Expiration Date, the Buyer may exercise its rights in respect of any Notional Amount of the Underlying Transaction or Transaction that does not exceed the Maximum Notional Amount (including an amount which is less than the Minimum Notional Amount where the exercise relates to all the Notional Amount of the Underlying Transaction or Transaction remaining unexercised.
- (b) On the Expiration Date, the Buyer may exercise its rights in respect of the entire Notional Amount of the Underlying Transaction or Transaction remaining unexercised, regardless of whether this is less than the Minimum Notional Amount or more than the Maximum Notional Amount.
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Overview
“Multiple Exercise” crops up in a number of places in the extended ISDA Universe. The canonical definition is “Multiple Exercise” in the 2021 ISDA Interest Rate Derivatives Definitions, but it also shows up in the 2002 ISDA Equity Derivatives Definitions (Multiple Exercise) and the ISDA EU Emissions Annex (Multiple Exercise), in each case getting to the same point, but in marginally different language.
Summary
A mechanical provision governing how those Options that can be exercised in an interim fashion (namely, Bermuda-style and American-style Options) can be exercised. If the Confirmation specifies exercise Integral Multiples of a Notional Amount or specifies Maximum Notional Amount or Minimum Notional Amount, then you must comply with those on any exercise date, and if you don’t your exercise will be rounded down as appropriate (or cancelled if you are below the minimum).
None of this applies on the Expiry Date, at which point you may exercise to your heart’s content in whatever Notional Amount that may be remaining, as long as you exercise the whole lot.
Also, if less than the Minimum Notional Amount is left of the transaction at any time, you can exercise that whole amount on any Exercise Date.
It doesn’t apply to European-style Options because you can’t exercise them at any time before the Expiry Date, so you have to exercise the whole lot at once.
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See also
References