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Template:M summ Equity Derivatives 11.1: Difference between revisions
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Template:M summ Equity Derivatives 11.1 (view source)
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===Likely elections=== | ===Likely elections=== | ||
Three things can happen to an [[Index - Equity Derivatives Provision|index]] which are beyond the control of the parties: it can be '''disrupted''', it can be '''materially changed''', or it can be '''cancelled''' altogether by the [[Index Sponsor - Equity Derivatives Provision|Index Sponsor]]. In any of these cases the bargain represented by an index transaction will no longer be the one anticipated by the parties on execution, and they may wish to take some action. The possible actions are: | |||
*'''{{eqderivprov|Index Cancellation}}''': This one, we humbly submit, is likely to be {{eqderivprov|Cancellation and Payment}}, seeing as there is nothing left to modify or, really, negotiate about. | *'''{{eqderivprov|Index Cancellation}}''': This one, we humbly submit, is likely to be {{eqderivprov|Cancellation and Payment}}, seeing as there is nothing left to modify or, really, negotiate about. | ||
*'''{{eqderivprov|Index Modification}}''': Here {{eqderivprov|Calculation Agent Adjustment}} doesn’t really make sense (as it implies a one-off adjustment), which falls to {{eqderivprov|Negotiated Close-out}}, which is really a wishy-washy way of saying {{eqderivprov|Cancellation and Payment}}, which, for {{eqderivprov|Index Modification}}s, gives both parties the ''option'' to cancel the trade, but not the obligation to. | *'''{{eqderivprov|Index Modification}}''': Here {{eqderivprov|Calculation Agent Adjustment}} doesn’t really make sense (as it implies a one-off adjustment), which falls to {{eqderivprov|Negotiated Close-out}}, which is really a wishy-washy way of saying {{eqderivprov|Cancellation and Payment}}, which, for {{eqderivprov|Index Modification}}s, gives both parties the ''option'' to cancel the trade, but not the obligation to. | ||
*'''{{eqderivprov|Index Disruption}}''': Index disruption is likely to be transitory — just a temporary failure to publish an index level — and seeing as the {{eqderivprov|Calculation Agent}}<ref>In its guise as {{eqderivprov|Hedging Party}}, of course.</ref> will be ''hedging'' by transacting in the underliers of the Index, so it ought to be able to calculate, near enough, an estimated Index level by reference to the closing prices of the constituents. Here, expect {{eqderivprov|Calculation Agent Adjustment}}. Should things become permanent, it is likely to be an Index Calculation or Index Modification, so the disruption terms no longer would be in play. | *'''{{eqderivprov|Index Disruption}}''': Index disruption is likely to be transitory — just a temporary failure to publish an index level — and seeing as the {{eqderivprov|Calculation Agent}}<ref>In its guise as {{eqderivprov|Hedging Party}}, of course.</ref> will be ''hedging'' by transacting in the underliers of the Index, so it ought to be able to calculate, near enough, an estimated Index level by reference to the closing prices of the constituents. Here, expect {{eqderivprov|Calculation Agent Adjustment}}, for the {{eqderivprov|Calculation Agent}} to have a bash at figuring out what the {{eqderivprov|Index}} ''would'' have paid had it not been altered, disrupted or cancelled.. Should things become permanent, it is likely to be an Index Calculation or Index Modification, so the disruption terms no longer would be in play. | ||
In all cases, remember: generally the [[swap dealer]] (who is {{eqderivprov|Calculation Agent}}) ''does not have a dog in the fight''. It will accommodate its customer’s wishes as far as it can — that is only good business — as long as those wishes reflect genuinely hedgeable positions. If the dealer can hedge, it will, and will pass on those economics. If it can’t, it won’t, and will account for the liquidation value of its hedges. | In all cases, remember: generally the [[swap dealer]] (who is {{eqderivprov|Calculation Agent}}) ''does not have a dog in the fight''. It will accommodate its customer’s wishes as far as it can — that is only good business — as long as those wishes reflect genuinely hedgeable positions. If the dealer can hedge, it will, and will pass on those economics. If it can’t, it won’t, and will account for the liquidation value of its hedges. | ||
The default option here is “[[Cancellation and Payment (Indices) - Equity Derivatives Provision|Cancellation and Payment]]”. [[Negotiated Close-out (Indices) - Equity Derivatives Provision|Negotiated Close-out]] is just an [[agreement to agree]], and it would be a brave {{eqderivprov|Calculation Agent}} indeed who volunteered to continue calculating a cancelled {{eqderivprov|Index}} based on previous rules once it has been disestablished by the actual Index sponsor, which is what {{eqderivprov|Calculation Agent Adjustment}} appears to require — but we have seen hopeful counterparties ask. They always seem so disappointed when you let them down. | |||