Template:Nutshell Equity Derivatives 9

Article 9 Physical Settlement
9.1. Physical Settlement of Option Transactions. For each Exercise Date under a Physically-settled Option Transaction, on the Settlement Date:

(a) Calls:

Buyer will pay Seller Settlement Price x Number of Shares to be Delivered or Settlement Price x Number of Baskets to be Delivered (without regard to rounding) and

Seller will deliver the Number of Shares to be Delivered or Number of Baskets to be Delivered and will pay any Fractional Share Amount to Buyer;

(b) Puts:

Buyer will deliver the Number of Shares to be Delivered or the Number of Baskets to be Delivered, and pay any Fractional Share Amount to Seller and

Seller will pay to Buyer Settlement Price x Number of Shares to be Delivered or Settlement Price x Number of Baskets to be Delivered (without regard to rounding); and

(c) such payments and deliveries will be made on the Settlement Date through the Clearance System to the accounts specified in the Confirmation.

9.2. Physical Settlement of Forward Transactions. For a Settlement Date under a Forward Transaction for which “Physical Settlement” applies, on the relevant Settlement Date:

(a) For a Share Forward Transaction:

(i) Neither “Prepayment” or “Variable Obligation” applies:

Buyer will pay to Seller an amount equal to Forward Price x Number of Shares, and

Seller will deliver the Number of Shares to be Delivered and pay any Fractional Share Amount to Buyer;

(ii) “Prepayment” does not apply and “Variable Obligation” applies:

Buyer will pay to Seller Forward Floor Price x Number of Shares

Seller will deliver the Number of Shares to be Delivered and pay any Fractional Share Amount to Buyer; and

(iii) if “Prepayment” applies, Seller will deliver to Buyer the Number of Shares to be Delivered and will pay the Excess Dividend Amount, if any, and any Fractional Share Amount; and

(b) For a Share Basket Forward Transaction:

(i) Neither “Prepayment” or “Variable Obligation” applies:

Buyer will pay to Seller an amount equal to Forward Price x Number of Baskets, and

Seller will deliver to Buyer Number of Shares of each Issuer in the Basket x Number of Baskets to be Delivered (rounded per Section 9.6) and will pay any Fractional Share Amount to Buyer;

(ii) “Prepayment” does not apply and “Variable Obligation” applies:

Buyer will pay to Seller Forward Floor Price x Number of Baskets' and'

Seller will deliver to Buyer Number of Shares of each Issuer in the Basket x Number of Baskets to be Delivered (rounded per Section 9.6) and will pay any Fractional Share Amount to Buyer; and

(iii) if “Prepayment” applies for each Issuer comprising the Basket, Seller will deliver to Buyer Number of Shares x Number of Baskets to be Delivered (rounded per Section 9.6) and will pay any Excess Dividend Amount or Fractional Share Amount to Buyer.

All payments and deliveries will be made through the Clearance Systems to the specified accounts of the Buyer or the Seller.
9.3. Physical Settlement of Equity Swap Transactions. Where “Physical Settlement” applies to an Equity Swap Transaction, on each Settlement Date:

• the Equity Amount Payer will deliver the Number of Shares or Baskets to be Delivered and will pay any Fractional Share Amount to the Equity Amount Receiver;and
• the Equity Amount Receiver will pay the Equity Notional Amount to the Equity Amount Payer.
  

9.4. “Settlement Date” means:

(a) for Option Transactions, the first Clearance System Business Day one Settlement Cycle after the Exercise Date; and

(b) for Forward Transactions and Equity Swap Transactions, the specified date (or, failing that, one Settlement Cycle after the Valuation Date (adjusted for Clearance System Business Days).

HOWEVER the Settlement Date will be delayed until any Settlement Disruption Event has lifted. If it doesn’t lift for 8 straight Clearance System Business Days then, if the Shares can be delivered some other way, the Settlement Date will be a settlement cycle after that eighth Clearance System Business Day. Otherwise, it will just be postponed until delivery can be effected.

If only some Shares in a Basket are disrupted, the unaffected portion must be settled on schedule.

9.5. “Number of Shares to be Delivered” is calculated as follows:

(a) Share Option Transactions: For an Exercise Date, number of exercised Options x Option Entitlement;

(b) Share Forward Transactions where “Variable Obligation” does not apply: the Number of Shares;

(c) Share Forward Transactions where “Variable Obligation” applies:

(i) if Settlement Price ≤ Forward Floor Price: Number of Shares.

(ii) if Forward Floor Price < Settlement Price ≤ Forward Cap Price: (Foward Floor Price/Equity Derivatives) x Number of Shares; and

(iii) if Settlement Price > Forward Cap Price: ((Forward Floor Price + Settlement Price - Forward Cap Price)/Settlement Price) x Number of Shares

(d) Share Swap Transactions: Number of Shares.

If the Number of Shares to be Delivered comprises any fraction of a Share, it will be rounded down to an integral number of Shares and a Fractional Share Amount will be payable in lieu of the fraction.

9.6. “Number of Baskets to be Delivered” means:

(a) Share Basket Option Transactions: on an Exercise Date, number of exercised Options x Option Entitlement.

(b) Share Basket Forward Transaction where “Variable Obligation” does not apply: Number of Baskets.

(c) Share Basket Forward Transaction where “Variable Obligation” applies:

(i) where Settlement Price ≤ Forward Floor Price: Number of Baskets.

(ii) where Forward Floor Price < Settlement Price ≤ Forward Cap Price: (Forward Floor Price/Settlement Price) x Number of Baskets.

(iii) where Settlement Price > Forward Cap Price: ((Forward Floor Price + Settlement Price - Forward Cap Price)/Settlement Price) x Number of Baskets

(d) Share Basket Swap Transactions: the Number of Baskets.

If the aggregate number of Shares of any Issuer in a Basket is not an integral number of Shares then the aggregate number of Shares of that Issuer to be delivered will be rounded down and a Fractional Share Amount paid in lieu of the fraction.

9.7. “Fractional Share Amount” means a Settlement Currency amount representing any fractional Share in a Number of Shares to be Delivered or the Number of Baskets to be Delivered multiplied by:

(a) Share Option Transactions and Share Basket Option Transactions: the Settlement Price for that Share on the Exercise Date (assuming Cash Settlement with an Exercise Date of the Valuation Date);

(b) Share Forward Transactions and Share Basket Forward Transactions: the Settlement Price for that Share on the Valuation Date for that Settlement Date (or, if none, the date one Settlement Cycle before the Settlement Date); and

(c) Share Swap Transactions and Share Basket Swap Transactions: the Final Price for the Share on the Valuation Date for that Settlement Date (or, if none, the date one Settlement Cycle before the Settlement Date).

9.8. “Settlement Disruption Event” means, an event beyond the control of the parties which means the Clearance System cannot transfer a Share.
9.9. Expenses. All Share transfer expenses and taxes will be payable by the party that would pay them in a normal sale of the Sharess in question through the relevant Clearance System.
9.10. Delivery Versus Payment. Delivery versus payment will apply wherever delivery and payment are due on the same day and the Clearance System permits it.
9.11. Representation and Agreement. A party delivering Shares under a Transaction represents, on the date of conveyance, that it has conveyed good title to the necessary Shares, free from:

(i) Encumbrance: any encumbrance (other customary liens) or other restrictions, without the receiver having to provide any documents or comply with any volume or manner of sale restrictions,

(ii) Transfer restrictions: any restrictions or required consents to transfer of the Shares by any person,

(iii) Transferee limitations: any limitations on who may be transferred such Shares,

(iv) Certification requirements: Any approval, consent, opinion or notice from any person before transfer, and

(v) Registration: any registration, qualification or prospectus delivery requirement for such Shares under applicable laws.

(vi) Book-entry form: Where a Clearance System is involved, the Shares are properly in book-entry form.

9.12. Indemnification for Failure to Deliver. If, absent a designatged Early Termination Date, a party fails to perform any delivery obligation, it will indemnify the other party on demand for any costs or expenses the other party incurs as a result. The deliveree’s signed certificate giving reasonable detail of those costs or expenses will be conclusive evidence that they have been incurred. However, no party will be liable for Consequential loss in any circumstances.