Settlement - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions
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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 7 in a Nutshell
Use at your own risk, campers!

7. General Terms Relating to Settlement
7.1. If “Settlement Method Election” applies then the “Electing Party” (if one is specified, or the Buyer or the Equity Amount Receiver if not) must give irrevocable notice of its election of Cash Settlement or Physical Settlement for the Transaction by the Settlement Method Election Date.

If the Electing Party does not elect a settlement method, it will be the specified “Default Settlement Method” if one is specified, or Cash Settlement (for Index Transactions and Equity Swap Transactions) and Physical Settlement (for Share Forward Transactions and Share Basket Forward Transactions) if not.
7.2. “Settlement Method Election Date” will be the date specified in the Confirmation, or, if it is not a Scheduled Trading Day, the next Scheduled Trading Day.
7.3. “Settlement Price” means, for any Valuation Date:

7.3(a) Cash-settled Share Option Transactions or Share Forward Transactions: the price per Share the Calculation Agent determines as provided under the Confirmation as of the Valuation Time on the Valuation Date or, if not so provided that the Settlement Price will be:
(i) for any Share on an “open outcry” Exchange that has a tradable price at the Valuation Time the price per Share at that Valuation Time, as reported by the Exchange; and
(ii) for any Share on a dealer Exchange or quotation system, the mid-point of the highest bid and lowest ask prices quoted at or immediately before the Valuation Time on the Valuation Date without regard to quotations that “lock” or “cross” the exchange or system;
7.3(b) Cash-settled Share Basket Option Transactions and Share Basket Forward Transactions: The Calculation Agent will determine the Settlement Price for the Basket according to the formula specified in the Confirmation or, if not specified, by adding the values for each Share in the Basket: Relevant Price x Number of Shares
7.3(c) Physically-settled Share Option Transactions and Share Basket Option Transactions: the Strike Price;
7.3(d) Index Option Transactions and Index Forward Transactions: The Calculation Agent will determine the level of the Index per the method in the Confirmation as of the Valuation Time on the Valuation Date or, if there is no such method, as the level of the Index at the Valuation Time on the Valuation Date; and
7.3(e) Index Basket Option Transactions and Index Basket Forward Transactions: the Calculation Agent will determine an amount for the Basket per the method in the Confirmation at the Valuation Times on the Valuation Date or, if no method is provided, as an amount for the Basket equal to the weighted sum of the Relevant Prices for the Indices in the Basket.

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Full text of Section 7

Article 7 General Terms Relating to Settlement
Section 7.1. Settlement Method Election. If “Settlement Method Election” is specified in the related Confirmation to be applicable to a Transaction, then the party specified as entitled to make the election (or, if no party is so specified, Buyer or the Equity Amount Receiver, as the case may be where applicable) (the “Electing Party”) must give irrevocable notice (which will be oral telephonic notice if practicable, and otherwise written notice) to the other party, or, if applicable, to the other party’s agent designated for the purpose of receiving such notice, of its election to have Cash Settlement or Physical Settlement apply to such Transaction. Such notice will be given on or prior to the relevant Settlement Method Election Date and the Electing Party will execute and deliver to the other party or, if applicable, such agent, a written confirmation confirming the substance of any telephonic notice within one Scheduled Trading Day of that notice. Without limiting a party’s obligation to provide such written confirmation, failure to provide it will not affect the validity of the telephonic notice. in that the event that the Electing Party does not deliver any notice to the other party of the settlement method it has elected with respect to such Transaction, the settlement method shall be the default settlement method (the “Default Settlement Method”) specified in the related Confirmation, or if no Default Settlement Method is specified, the settlement method in respect of an Index Transaction or an Equity Swap Transaction shall be Cash Settlement and the settlement method in respect of a Share Forward Transaction or a Share Basket Forward Transaction shall be Physical Settlement.
Section 7.2. Settlement Method Election Date. “Settlement Method Election Date” means the date specified as such in the related Confirmation, or, if such date is not a Scheduled Trading Day, the next following Scheduled Trading Day.
Section 7.3. Settlement Price. “Settlement Price” means, in relation to a Valuation Date:

7.3(a) in respect of a Cash-settled Share Option Transaction or a Share Forward Transaction, the price per Share determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or, if no means for determining the Settlement Price are so provided (i) in respect of any Share for which the Exchange is an auction or “open outcry” exchange that has a price as of the Valuation Time at which any trade can be submitted for execution, the Settlement Price shall be the price per Share as of the Valuation Time on the Valuation Date as reported in the official real-time price dissemination mechanism for such Exchange; and (ii) in respect of any Share for which the Exchange is a dealer exchange or dealer quotation system, the Settlement Price shall be the mid-point of the highest bid and lowest ask prices quoted as of the Valuation Time on the Valuation Date (or the last such prices quoted immediately before the Valuation Time) without regard to quotations that "lock” or “cross” the dealer exchange or dealer quotation system;
7.3(b) in respect of a Cash-settled Share Basket Option Transaction or a Share Basket Forward Transaction, an amount for the Basket determined by the Calculation Agent as provided in the related Confirmation as of the relevant Valuation Time(s) on the Valuation Date or, if no means for determining the Settlement Price are so provided, an amount for the Basket equal to the sum of the values for the Shares of each Issuer as the product of (i) the Relevant Price of such Share and (ii) the relevant Number of Shares comprised in the Basket;
7.3(c) in respect of a Physically-settled Share Option Transaction or a Physically-settled Share Basket Option Transaction, the Strike Price;
7.3(d) in respect of an Index Option Transaction or Index Forward Transaction, the level of the Index determined by the Calculation Agent as provided in the related Confirmation as of the Valuation Time on the Valuation Date or, if no means for determining the Settlement Price are so provided, the level of the Index as of the Valuation Time on the Valuation Date; and
7.3(e) in respect of an Index Basket Option Transaction or Index Basket Forward Transaction, an amount for the Basket determined by the Calculation Agent as provided in the related Confirmation as of the relevant Valuation Time(s) on the Valuation Date or, if no means for determining the Settlement Price are so provided, an amount for the Basket equal to the sum of the Relevant Prices (weighted or adjusted in relation to each Index as provided in the related Confirmation) for the Indices comprised in the Basket.

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Content and comparisons

Article 7. General Terms Relating to Settlement

Section 7.1. Settlement Method Election
Section 7.2. Settlement Method Election Date
Section 7.3. Settlement Price


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Summary

Settlement Method Election

Much, much simpler than ISDA’s crack drafting squad™ would have you believe. If you have the option to select Cash Settlement or Physical Settlement, then you have to elect that, and if you don’t, the specified fall-backs —either in the Confirmation, or if not, in the 2002 ISDA Equity Derivatives Definitions — will apply.

A work-a-day, sensible provision rendered ghoulish by ISDA’s crack drafting squad™ and its depraved way with words.
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See also

Template:M sa Equity Derivatives 7
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References