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| You cannot, of course, ever guarantee you will be able to trade at exactly the official closing price, but it helps in trying to get near it if the Exchange on which that price is determined is open at the time when that closing price is derived, is liquid, tradable, and isn’t subject to some unforeseen disruption. These are “{{eqderivprov|Market Disruption Event}}s”. | | You cannot, of course, ever guarantee you will be able to trade at exactly the official closing price, but it helps in trying to get near it if the Exchange on which that price is determined is open at the time when that closing price is derived, is liquid, tradable, and isn’t subject to some unforeseen disruption. These are “{{eqderivprov|Market Disruption Event}}s”. |
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| In a classic piece of {{icds}} over-engingeering, the operative term “{{eqderivprov|Market Disruption Event}}” is broken down into three sub-definitions — “{{eqderivprov|Trading Disruption}}”, “{{eqderivprov|Exchange Disruption}}” and “{{eqderivprov|Early Closure}}” — which don’t appear to have any independent claim on existence at least insofar as the pre-printed {{eqdefs}} are concerned.
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| Remember the underlying vibe here: this is meant to save the {{eqderivprov|Hedging Party}}’s bacon if for some reason it can’t ''actually'' hedge its exposure. One can hedge ''Index'' exposure in multiple ways: through a [[total return swap]], by buying futures on the index, or by trading the physical stocks underlying the index, or a combination of the above. Thus, the language is nice and loosey-goosey, allowing the flexibility to the {{eqderivprov|Calculation Agent}} however it elects to hedge, and so contemplates a disruption whether it is because there is no market in the constituent components ''or'' index futures.
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| But this provides some rather odd optionality. It might be that some of the {{eqderivprov|Index}} component {{eqderivprov|Shares}} are disrupted, but, say, [[futures]] in the {{eqderivprov|Index}} are not, and the {{eqderivprov|Calculation Agent}} ''can'' in fact fully hedge its exposure, but it could technically invoke an {{eqderivprov|Index Disruption}} anyway. At times of maximum dislocation, published {{eqderivprov|Index}} values don’t always fabulously represent the value of their constituents, especially where those constituents are connected with countries which unexpectedly invade Ukraine. This can lead to frantic conversations between counterparties to {{eqderivprov|Index Swap}}s, usually agreeing to flat out ignore the equity derivatives definitions and do what seems the fair thing in the unusual consequences.
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| Note: there are separate disruption events relating to change, cancellation or non-publication of Indices themselves. For that, see Section {{eqderivprov|11.1(b)}} relating to {{eqderivprov|Index Adjustment Event}}s. This is what happens if external events conspire to prevent trading in the component underliers comprising an Index — you can’t directly invest in the Index itself, of course, it being only an intellectual construct.
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