Key Points:
ISDA's latest draft definitions are very detailed and differ markedly from the equivalent provisions in the 2002 ISDA Equity Definitions
In our August edition of Insights we canvassed some key features of the new 2011 ISDA Equity Derivatives Definitions published by the International Swaps and Derivatives Association, Inc. (ISDA).
One of the key features that we highlighted was the new toolbox format for the 2011 Equity Definitions, which comprises four key documents: the 2011 definitions booklet (the so-called "Main Book"), the Appendix, an ISDA Transaction Matrix and a short-form Transaction Supplement.
At the time, ISDA had only published a template version of the Appendix with a view to subsequently populating the template with workable combinations of definitions, elections and methodologies that would be rolled out on a product basis for equity derivatives incorporating the 2011 Equity Definitions.
In November 2011, ISDA circulated a pre-publication draft of the Appendix populated with supplementary definitions and operative provisions that will apply to specific types of index variance swaps. The provisions are very detailed and differ markedly from the equivalent provisions in the 2002 ISDA Equity Definitions.
The ISDA Equity Definitions working group is continuing to work on more specific terms for EU and US index variance swaps with a view to producing an updated and enhanced Appendix to accommodate these transaction types during the course of 2012.
The 2002 ISDA Equity Derivatives Definitions will not be replaced by its 2011 successor for some time yet. However, given the complexity of the 2011 Equity Definitions, we recommend that parties begin to familiarise themselves with their contents so that they may begin to consider the implications of the new definitions for their business operations and transaction systems.
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