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Template:Calculation agent versus determination agent: Difference between revisions
Template:Calculation agent versus determination agent (view source)
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The {{eqderivprov|Determining Party}} only ever has to determine a {{eqderivprov|Cancellation Amount}}, {{eqderivprov|Cancellation and Payment}} or {{eqderivprov|Partial Cancellation and Payment}} under {{eqderivprov|12.8}}, and that will only happen in only when a {{eqderivprov|Transaction}} terminates following an {{eqderivprov|Extraordinary Event}} or an {{eqderivprov|Additional Disruption Event}}. | |||
==={{eqderivprov|Calculation Agent}} vs. {{eqderivprov|Determining Party}}=== | ==={{eqderivprov|Calculation Agent}} vs. {{eqderivprov|Determining Party}}=== | ||
'''Why''': The {{eqderiv}} recognise that while most calculations could be performed by whoever is appointed {{eqderivprov|Calculation Agent}}, determination of a {{eqderivprov|Cancellation Amount}} is inextricably related to the [[hedge]] and — especially where there is a [[Market Disruption Event - Equity Derivatives Provision|disrupted market]] – this is best to be calculated by the one whose problem it is to unwind that hedge: namely, the {{eqderivprov|Hedging Party}}. | '''Why''': The {{eqderiv}} recognise that while most calculations could be performed by whoever is appointed {{eqderivprov|Calculation Agent}}, determination of a {{eqderivprov|Cancellation Amount}} is inextricably related to the [[hedge]] and — especially where there is a [[Market Disruption Event - Equity Derivatives Provision|disrupted market]] – this is best to be calculated by the one whose problem it is to unwind that hedge: namely, the {{eqderivprov|Hedging Party}}. | ||
In theory (though almost never in practice<ref>If ''{{eqderivprov|Calculation Agent}} == [[Dealer]]'', and ''[[Dealer]] == {{eqderivprov|Hedging Party}}'', and ''{{eqderivprov|Hedging Party}} == {{eqderivprov|Determining Party}}'', then ''{{eqderivprov|Calculation Agent}} == {{eqderivprov|Determining Party}}''.</ref> | In theory (though almost never in practice)<ref>If ''{{eqderivprov|Calculation Agent}} == [[Dealer]]'', and ''[[Dealer]] == {{eqderivprov|Hedging Party}}'', and ''{{eqderivprov|Hedging Party}} == {{eqderivprov|Determining Party}}'', then ''{{eqderivprov|Calculation Agent}} == {{eqderivprov|Determining Party}}''.</ref> the {{eqderivprov|Hedging Party}} might not be the {{eqderivprov|Calculation Agent}}. | ||
In theory, too, the {{eqderivprov|Hedging Party}} might not be named the {{eqderivprov|Determining Party}}. Which is kind of awkward, since the {{eqderivprov|Cancellation Amount}} is couched in terms of the cost to the determining Party of unwinding, liquidating or re-establishing its hedge — which it would only do if it was, like, ''[[hedging]]''. | In theory, too, the {{eqderivprov|Hedging Party}} might not be named the {{eqderivprov|Determining Party}}. Which is kind of awkward, since the {{eqderivprov|Cancellation Amount}} is couched in terms of the cost to the determining Party of unwinding, liquidating or re-establishing its hedge — which it would only do if it was, like, ''[[hedging]]''. | ||
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Lastly, note that if your investment bank is as left-handedly configured as some the [[JC]] has come across,<ref>AND WHO SHALL REMAIN NAMELESS.</ref> the group entity writing the equity swaps might not be the same as the one doing the physical hedging of those swap obligations (with a back-to-back trade between them, for example), so the Hedging Party/Determining Party might not be either party to the actual {{isdama}} at all. | Lastly, note that if your investment bank is as left-handedly configured as some the [[JC]] has come across,<ref>AND WHO SHALL REMAIN NAMELESS.</ref> the group entity writing the equity swaps might not be the same as the one doing the physical hedging of those swap obligations (with a back-to-back trade between them, for example), so the Hedging Party/Determining Party might not be either party to the actual {{isdama}} at all. | ||
'' | ===The User’s Guide=== | ||
We have noted [[12.7(c) - Equity Derivatives Provision|elsewhere]] that the User’s Guide is less forthcoming than one might like it to be on what the Determining Party is for, and when (or why) there might ever be ''two''. But it does say this: | |||
{{quote|“{{cancellation amount UG}}”}} | |||
If this is meant to help, it singularly fails to, except to recognise that the {{eqderivprov|Determining Party}} is acting ''in its capacity as a {{eqderivprov|Hedging Party}}'', and not in its gnomic, wise, dispassionate role as impartial determiner of abstract values. This explains, maybe, why {{icds}} thought it worthwhile to have distinct roles of {{eqderivprov|Calculation Agent}} and {{eqderivprov|Determining Party}} — it is not saying (as far as we can tell) that the party who is {{eqderivprov|Calculation Agent}} cannot ''be'' {{eqderivprov|Determining Party}} at all, but only that when it ''is'' being a {{eqderivprov|Determining Party}} it is ''not'' being {{eqderivprov|Calculation Agent}}: the two roles wear different trousers, so to speak. | |||
''' | But what it ''does'' confirm is that the {{eqderivprov|Determining Party}} is meant to refer to the person who is actually hedging the trade, and that what they will be doing is liquidating hedges to get prices. | ||