Template:M summ Equity Derivatives 13

Non-reliance

ISDA’s crack drafting squad™’s very own, verbose, take on standard termsheet boilerplate. There is a standard Non-Reliance provision in the Schedule to the ISDA Master Agreement — why they didn’t put it in the 2002 ISDA itself you may stoop to wonder — so query why ISDA has thought to include this. After all, if it is in the Schedule it is redundant here; if the parties have negotiated it out of their Schedule — they won’t have — then what prospect is there that they will agree it here, specifically for Equity Derivatives?

Hedging activities

An enormous wodge of text which states the bleeding obvious. It is well-meaningly intended to disarm paranoid tax lawyers who worry that an equity derivative (especially a delta-one synthetic prime brokerage transaction) might look like a wheeze to do the taxman out of stamp duty or other transaction tax attaching to a cash equity trade. This acknowledgment is meant to encourage the taxman not to recharacterise the derivative as a cash equity order in disguise.

It has, as the Bard put it, a “methinks the lady doth protest too much” feel about it, but you will see it applied in the synthetic PB space. Though it would be an odd hedge about which these characteristics did not apply.