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2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™
Partial Cancellation and Payment in a Nutshell™
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12.2 Consequences of Merger Events
- 12.2(f) “Partial Cancellation and Payment”, then, in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Merger Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.3 Consequences of Tender Offers
- 12.3(e) “Partial Cancellation and Payment”, then, in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Tender Offer Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares; or
12.6(c) Nationalization, Insolvency and Delisting
- (iii) “Partial Cancellation and Payment” means that in respect of a Share Basket Transaction, that portion of the Share Basket Transaction represented by Affected Shares will be cancelled as of the Announcement Date, the amount calculated in accordance with Section 12.7 in respect of such Affected Shares, will be paid by one party to the other, the remainder of the Share Basket Transaction will continue with the Basket comprising Shares that are not Affected Shares, and the Calculation Agent will adjust any relevant terms if necessary to preserve as nearly as practicable the economic terms of the Transaction for the remaining Shares.
12.7(a) If, in respect of an Extraordinary Event, “Cancellation and Payment” or “Partial Cancellation and Payment” applies or is deemed to apply to the relevant Transaction (or a portion thereof), then an amount will be paid by one party to the other determined as provided in clause (b) or (c) below, such payment to be made not later than three Currency Business Days following the date that notice of the determination by the Calculation Agent or the Determining Party, as the case may be, of such amount (denominated in the currency for settlement of the Transaction as determined by the Calculation Agent or the Determining Party, as the case may be) and which party shall pay such amount is effective, which notice shall be provided promptly following such determination.
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Resources and Navigation
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Overview
It is at times like this one despairs of ISDA’s crack drafting squad™. For here is some ugly, convoluted text, repeated three times in the document, and each time it is, but for a cross-reference, identical. We would like to think that the text could have been used just once, and maybe simplified too, but perhaps that is too much to ask. This page is a piece of the extended universe, then; some ISDA fan fiction that wonders what might have happened had someone done that.
Summary
So, what is going on here then? Well, in a certain type of Transaction — specifically, a Share Basket Transaction — an Extraordinary Event may affect one but not the other Shares in the Basket: Tender Offer, Merger Event, Nationalization, Insolvency or a Delisting.
In this case there is the opportunity to partially cancel the Transaction, pay that bit of it out, and the remainder of the Transaction carries on, at the reduced notional. Partial Cancellation and Payment isn’t relevant for a single Share Transaction — it’s all or nothing, obviously enough — nor an Index Transaction, because the Index will likely be adjusted and recalculated (there may be a substitution or some such thing) but in any case the notional of the Transaction does not reduce in this case: rather the deterioration in value is reflected in the level of the Index.
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- The JC’s famous Nutshell™ summary of this clause
- A worked example illustrating what might happen in a Share Basket Transaction if one of the Shares is subject to an Extraordinary Event.
See also
References