Download Supplement number 28 to the 2006 ISDA Definitions

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Supplement number 28 to the 2006 ISDA Definitions
(published on September 30 2011)
Article 15 PHYSICAL SETTLEMENT OF SWAPTIONS
(a)
Article 15 is hereby amended by the addition of a new sub-section 15.2 as follows:
“Section 15.2 Cleared Physical Settlement.
If "Cleared Physical Settlement" is specified in the related Confirmation for a
Swaption , the Seller shall grant the Buyer, pursuant to the Swaption, the right to cause the
Underlying Swap Transaction (which in the case of a Swaption forming part of a Swaption
Straddle will be either an Underlying Payer Swap or an Underlying Receiver Swap) to
become effective in accordance with Section 15.1 (Physical Settlement); provided, however
that the Underlying Swap Transaction is cleared through a mutually agreed upon
clearinghouse that accepts cash denominated in the same currency as the Relevant Swap
Transaction as Eligible Collateral for margining purposes, and pays interest on that cash at
the Discount Rate specified in the ISDA Collateral Cash Price Matrix.
Once a clearinghouse is agreed in the relevant notice of exercise, the Underlying
Swap Transaction shall be governed by the terms of any agreement relating to clearing
between the parties in accordance with its terms. For the avoidance of doubt, if a
clearinghouse is agreed in the relevant notice of exercise and the Underlying Swap
Transaction fails to clear, the terms of any agreement relating to clearing between the parties
shall govern.
If the Underlying Swap Transaction fails to clear and the parties have not entered into
any agreement relating to clearing the parties agree to an early termination of the Underlying
Swap Transaction resultant from the Physical Settlement. The Early Termination Amount
will be an amount calculated by using the "Collateralized Cash Price" Cash Settlement
Method.
If the parties cannot agree on a clearinghouse in the relevant notice of exercise, the
parties agree that Cash Settlement shall apply to the Swaption Transaction and the Cash
Settlement Amount will be an amount calculated by using the "Collateralized Cash Price"
Cash Settlement Method.”
Section 18.3 Cash Settlement Methods.
(b)
Section 18.3 is hereby amended by the addition of a new sub-section 18.3(g) as
follows:
“(g)
Collateralized Cash Price.
(i) Subject to paragraph (ii) below, if "Collateralized Cash Price" is specified in the
related Confirmation to be the Cash Settlement Method applicable to an Option Transaction
or Swap Transaction to which Optional Early Termination or Mandatory Early Termination is
Copyright © 2011 by International Swaps and Derivatives Association, Inc.
applicable, the Cash Settlement Amount will be an amount calculated as the present value of
an annuity equal to the difference between:
(A) the amounts that would be payable by the Fixed Rate Payer under the
Relevant Swap Transaction if the Fixed Rate were the Settlement Rate; and
(B) the amounts payable by the Fixed Rate Payer under the Relevant Swap
Transaction.
The discount factors used to calculate such present value will be calculated from a
current zero coupon curve agreed between the parties, derived on the Cash Settlement
Valuation Date at the Cash Settlement Valuation Time from the interest rate used to calculate
payments on Cash collateral denominated in the same currency as the Relevant Swap
Transaction, where the parties to the Relevant Swap Transaction are deemed to have a
bilateral, zero-Threshold ISDA Credit Support Annex, with Cash denominated in the same
currency as the Relevant Swap Transaction as the only Eligible Collateral or Eligible Credit
Support, as applicable (the terms “Threshold”, “Cash”, “Eligible Collateral" and "Eligible
Credit Support" have the same meanings set forth in the ISDA Credit Support Annex). For
purposes of calculating the Cash Settlement Amount pursuant to this Section 18.3(g), unless
otherwise specified in the related Confirmation, the interest rate used to determine the zero
coupon curve and the Settlement Rate used to determine the amounts payable under (A) shall
be, respectively, the Discount Rate and the Settlement Rate specified in the ISDA Collateral
Cash Price Matrix with respect to the currency of the Relevant Swap Transaction. If no
Discount Rate or Settlement Rate is specified in the ISDA Collateral Cash Price Matrix for
the Relevant Swap Transaction currency, the Discount Rate used to calculate the zero coupon
curve and the Settlement Rate used to determine the amounts payable under (A) above will
be determined by the Calculation Agent in good faith and using commercially reasonable
procedures.
(ii) If "Collateralized Cash Price" is specified in the related Confirmation to be the
Cash Settlement Method applicable to a Swap Transaction to which Optional Early
Termination or Mandatory Early Termination is applicable, and the Optional Early
Termination Date or Mandatory Early Termination Date, as the case may be, falls on a date
which is not both a Fixed Rate Payer Payment Date and a Floating Rate Payer Payment Date
under that Swap Transaction, then the Cash Settlement Amount will be an amount equal to
the Cash Settlement Amount determined pursuant to subparagraph (i) above in respect of the
period from, and including, the next such date, together with an amount in respect of amounts
accrued but in respect of which the originally scheduled Payment Date has not yet arisen as at
the Optional Early Termination Date or Mandatory Early Termination Date, as the case may
be.
If the parties are unable to agree on the Cash Settlement Amount, the Calculation
Agent will request the Cash Settlement Reference Banks to provide a quotation using the
Collateralized Cash Price methodology described above. If at least three quotations are
provided, the Cash Settlement Amount will be the arithmetic mean of the quotations,
eliminating the highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest). If fewer than three
quotations are provided, the Cash Settlement Amount will be determined by the Calculation
Agent in good faith and using the Collateralized Cash Price methodology.”
Copyright © 2011 by International Swaps and Derivatives Association, Inc.
Article 19 ISDA SETTLEMENT MATRICES
(c) Section 19.1 is hereby amended to read in its entirety as follows;
“Section 19.1. Application of ISDA Settlement Matrices. Unless otherwise
specified in the related Confirmation, the ISDA Settlement Matrix, as amended and
supplemented through the Trade Date of the relevant Swap Transaction, will apply in respect
of a Swap Transaction (a) to which Cash Settlement and either Optional Early Termination or
Mandatory Early Termination is applicable or (b) that is a Swaption to which either Cash
Settlement, Physical Settlement or Cleared Physical Settlement is applicable, if the Swap
Transaction or Underlying Swap Transaction, as the case may be, involves one currency and
that currency is then included in the ISDA Settlement Matrix. Unless otherwise specified in
the related Confirmation, the ISDA Cross Currency Settlement Matrix, as amended and
supplemented through the Trade Date of the relevant Swap Transaction, will apply in respect
of a Swap Transaction (a) to which Cash Settlement and either Optional Early Termination or
Mandatory Early Termination is applicable or (b) that is a Swaption to which either Cash
Settlement, Physical Settlement or Cleared Physical Settlement is applicable, if the Swap
Transaction or Underlying Swap Transaction, as the case may be, involves two currencies
and those currencies are then included as a “Currency Pair” in the ISDA Cross Currency
Settlement Matrix. Unless otherwise specified in the related Confirmation, the ISDA
Collateral Cash Price Matrix, as amended and supplemented through the Trade Date of the
relevant Swap Transaction, will apply in respect of a Swaption to which Cleared Physical
Settlement is applicable. Notwithstanding any other provisions of these 2006 Definitions, if
the ISDA Settlement Matrix, ISDA Cross Currency Settlement Matrix or Collateral Cash
Price Matrix, as the case may be, applies, the relevant elections specified in the ISDA
Settlement Matrix, ISDA Cross Currency Settlement Matrix or Collateral Cash Price Matrix,
as the case may be, as of the Trade Date relating to exercise and/or settlement for Swap
Transactions involving the relevant currency or currencies will, except to the extent that those
elections are inconsistent with terms specified in the related Confirmation, be deemed to have
been specified in the related Confirmation.”
(d) Article 19 is hereby amended by the addition of a new sub-section 19.4 as follows:
“Section 19.4. ISDA Collateral Cash Price Matrix. “ISDA Collateral Cash Price
Matrix” means the "ISDA Collateral Cash Price Matrix" or its successor, as amended and
supplemented from time to time and published by ISDA on its website at
http://www.isda.org.”
Copyright © 2011 by International Swaps and Derivatives Association, Inc.
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