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Template:M summ Equity Derivatives 11.4: Difference between revisions
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[[11.4 - Equity Derivatives Provision|Given]] that a {{eqderivprov|Settlement Cycle}} means (in the JC’s summary): | [[11.4 - Equity Derivatives Provision|Given]] that a {{eqderivprov|Settlement Cycle}} means (in the JC’s summary): | ||
{{quote|{{Nutshell Equity Derivatives 1.37}}}} | {{quote|{{Nutshell Equity Derivatives 1.37}}}} | ||
You will see these only apply to adjustments that happen quickly following publication of the relevant closing price, by way of [[snafu]]. There are some fairly obvious snafus — MSCI’s pricing of its Emerging Markets Index on the day of sanctions were imposed on Russian equities in 2002 — which were apparently wrong, but were not immediately corrected, and in all likelihood (writing a month later) will not be corrected at all. | You will see these only apply to adjustments that happen quickly following publication of the relevant closing price, by way of [[snafu]]. | ||
There is no method for calculating what the adjustment should be, which is commendably ''laissez faire'' from {{icds}} but really no more than common sense: trying to solve for an unspecified error in the [[complex adaptive system]] that is an equity market is a fool’s errand. The Calculation Agent should usually be the swap dealer, and we would expect any such dealer wanting to keep its clients at all, let alone happy, is going to consult with them and do whatever most appears to be The Decent Thing as long as it does not involve the dealer itself taking a bath. | |||
(There will be some earnest souls in [[compliance]] who think the safest thing will be for the dealer to take a bath, but try to resist this siren call, and spare a thought for that other ill-considered bunch of investors: the [[dealer]]’s shareholders.) | |||
There is usually a common-sense solution that means the dealer does not take a bath and the investors are treated fairly (remember to treat investors rateably, by the way). All you need is someone on the trading desk to think of it. | |||
===Adjustments of this kind are quite rare and tend to happen immediately or not at all=== | |||
There are some fairly obvious snafus — MSCI’s pricing of its Emerging Markets Index on the day of sanctions were imposed on Russian equities in 2002 — which were apparently wrong, but were not immediately corrected, and in all likelihood (writing a month later) will not be corrected at all. | |||
If they are, it is too late, dear friends: your {{eqderivprov|Index Swap Transaction}} will be stuck with the original calculation. Comfort yourself thus: even if it were not, your swap dealer would almost certainly have had some means of passing the loss it will inevitably take as a result of the adjustment. | If they are, it is too late, dear friends: your {{eqderivprov|Index Swap Transaction}} will be stuck with the original calculation. Comfort yourself thus: even if it were not, your swap dealer would almost certainly have had some means of passing the loss it will inevitably take as a result of the adjustment. | ||