Valuation Time - Equity Derivatives Provision

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2002 ISDA Equity Derivatives Definitions

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6.1 in a Nutshell

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Section 6.1. Valuation Time. “Valuation Time” means the time on the relevant Valuation Date or Averaging Date, as the case may be, specified as such in the related Confirmation or, if no such time is specified, the Scheduled Closing Time on the relevant Exchange on the relevant Valuation Date or Averaging Date, as the case may be, in relation to each Index or Share to be valued. If the relevant Exchange closes prior to its Scheduled Closing Time and the specified Valuation Time is after the actual closing time for its regular trading session, then the Valuation Time shall be such actual closing time.

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Article 6. Valuation

Section 6.1. Valuation Time
Section 6.2. Valuation Date
Section 6.3. General Terms Relating to Market Disruption Events

6.3(a) Market Disruption Event
6.3(b) Trading Disruption
6.3(c) Exchange Disruption
6.3(d) Early Closure

Section 6.4. Disrupted Day
Section 6.5. Scheduled Valuation Date
Section 6.6. Consequences of Disrupted Days
Section 6.7. Averaging

6.7(a). Averaging Date
6.7(b). Settlement Price and Final Price
6.7(c). Averaging Date Disruption
6.7(d). Adjustments of the Exchange-traded Contract
6.7(e). Adjustments to Indices (Averaging)

Section 6.8. Futures Price Valuation

6.8(a) Valuation Date (Futures Price Valuation)
6.8(b) Additional definitions (Futures Price Valuation)
6.8(c) Settlement Price and Final Price (Futures Price Valuation)
6.8(d) Adjustments of the Exchange-traded Contract (Futures Price Valuation)
6.8(e) Non-Commencement or Discontinuance of the Exchange-traded Contract
6.8(f) Corrections of the Official Settlement Price



For run-of-the-mill valuations not related to the termination of a Transaction, the fall-back Scheduled Closing Time regime is fine.

The effect of the Valuation Date is to re-strike the Equity Notional Amount (or cash settle the movement in the underlier since the last Valuation Date[1] which is economically similar to a variation margin payment.

For the final Valuation Date, on the other hand - which feeds into the actual termination price for the Transaction, expect the broker to be more exercised about the timing matching the point at which it liquidates its actual Hedge Position. Expect jumpier US tax folk to start rabbiting on about hypothetical broker-dealers liquidating hypothetical hedges, but have no truck with that sort of talk.

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See also


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