Template:M gen Equity Derivatives 12.9(a)(ii)

Shares versus Hedge Positions

Common to see references in (x) to “Shares” replaced by the slightly wider “Hedge Positions”. Not objectionable, but not massively germane either. Ok, maybe your Hedging Party is hedging with futures, or a derivative and not Shares directly. But even then, and someone else therefore, is holding the Shares. Note that Hedge Positions is wide — it talks about “hedging the Transaction”, not just “the equity price risk of entering into and performing its obligations with respect to the relevant Transaction” as does, for example, Increased Cost of Hedging. So it can save you quite a lot of anal drafting.

But they can either continue to do that, and your Hedging Party can continue to hold its future or swap — in which case what’s your disruption? — or they can’t, in which case you have a more general Hedging Disruption. We don’t think it is so likely that it will somehow become illegal to hold a future or swap — one doesn’t tend to nationalise derivatives on the whole — but in these kooky political times anything is possible, I suppose.

Reasonable steps to avoid?

Uber pedants may also try to argue that there should be some obligation on the Hedging Party to take reasonable steps to avoid a change in law. This is silly, Chicken Lickenish behaviour. I mean, what are you meant to do? Lobby Congress? Remember, “Hedge Positions” is wider and more generic than “any particular hedge position that you happen to have on” at the time the law changes. If you can change your hedging strategy, you are not subject to a Change in Law. So resist this drafting, but don’t die in a ditch about it.