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Template:M gen Equity Derivatives Calculation Agent, Determining Party and Hedging Party: Difference between revisions
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Template:M gen Equity Derivatives Calculation Agent, Determining Party and Hedging Party (view source)
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All the same we dimly apprehend that a {{eqderivprov|Calculation Agent}} who also happens to be one of the counterparties has some kind of conflict of interest — [[buy-side legal eagle]]s ''definitely'' apprehend that — but in [[equity derivatives]] the conflict is more one of form than substance: the [[swap dealer]] hedges itself [[delta-one]] and has nothing to gain, in the abstract, by valuing a Transaction artifically high or low. Its revenue, remember, comes from its commissions and its financing efficiency, not through the price of the underlier. | All the same we dimly apprehend that a {{eqderivprov|Calculation Agent}} who also happens to be one of the counterparties has some kind of conflict of interest — [[buy-side legal eagle]]s ''definitely'' apprehend that — but in [[equity derivatives]] the conflict is more one of form than substance: the [[swap dealer]] hedges itself [[delta-one]] and has nothing to gain, in the abstract, by valuing a Transaction artifically high or low. Its revenue, remember, comes from its commissions and its financing efficiency, not through the price of the underlier. | ||
'''{{eqderivprov|Hedging Party}} and {{eqderivprov|Determining Party}}''': The Determining Party and Hedging Party are, by contrast, parties (not necessarily counterparties to the actual {{eqderivprov|Transaction}}, though usually) overtly acting with regard to their own position, being the hedge transaction, not the equity swap itself — though in every case, required to do so in [[good faith]] and using [[commercially reasonable]] procedures. | '''{{eqderivprov|Hedging Party}} and {{eqderivprov|Determining Party}}''': The {{eqderivprov|Determining Party}} and {{eqderivprov|Hedging Party}} are, by contrast, parties (not necessarily counterparties to the actual {{eqderivprov|Transaction}}, though usually) overtly acting with regard to their own position, being the hedge transaction, not the equity swap itself — though in every case, required to do so in [[good faith]] and using [[commercially reasonable]] procedures. | ||
===“Good faith and commercial reasonableness” standard=== | ===“Good faith and commercial reasonableness” standard=== | ||
At first blush it looks like only the {{eqderivprov|Calculation Agent}} is subject to the “{{gfcrm}}” standard, but this is really just the way {{icds}} decided to express themselves. Whereas the performance standard is baked into the definition of Calculation Agent in Section {{eqderivprov|1.40}}, for | At first blush it looks like only the {{eqderivprov|Calculation Agent}} is subject to the “{{gfcrm}}” standard, but this is really just the way {{icds}} decided to express themselves. Whereas the performance standard is baked into the definition of {{eqderivprov|Calculation Agent}} in Section {{eqderivprov|1.40}}, for {{eqderivprov|Determining Party}} it is set out separately in Section {{eqderivprov|12.8(b)}}, and {{eqderivprov|12.8(e)}} and {{eqderivprov|12.8(g)}}: “Any {{eqderivprov|Cancellation Amount}} will be determined by the {{eqderivprov|Determining Party}} (or its [[agent]]), which will act in [[good faith]] and use [[commercially reasonable]] procedures in order to produce a [[commercially reasonable]] result.” | ||
Likewise for the Hedging Party, which Section {{eqderivprov|12.9(a)(v)}} requires to have made commercially reasonable efforts to hedge before declaring there has been a {{eqderivprov|Hedging Disruption}}, as does Section {{eqderivprov|12.9(a)(vii)}} for {{eqderivprov|Loss of Stock Borrow}} and Section {{eqderivprov|12.9(a)(xi)}} when sourcing a {{eqderivprov|Lending Party}}. | Likewise for the {{eqderivprov|Hedging Party,}} which Section {{eqderivprov|12.9(a)(v)}} requires to have made [[commercially reasonable]] efforts to hedge before declaring there has been a {{eqderivprov|Hedging Disruption}}, as does Section {{eqderivprov|12.9(a)(vii)}} for {{eqderivprov|Loss of Stock Borrow}} and Section {{eqderivprov|12.9(a)(xi)}} when sourcing a {{eqderivprov|Lending Party}}. | ||