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General Derivatives Clauses

Derivatives Documentation » General Definitions

We have put together a collection of commonly used general definitions and wording used in derivatives agreements. You will also find other generally use derivatives provisions at the derivatives terms main section and derivatives templates.

accrued interest¦ agreement to purchase¦ announcement¦ Arbitration¦ basket adjustment¦ cap/floor transaction¦ close-out¦ consent¦ costs¦ document order¦ duty of care¦ french insolvency¦ FIEL¦ FX rate¦ guarantee¦ hedge position¦ indemnity¦ ISDA definitions¦ JGB rates¦ limited recourse¦ market quotation¦ non-petition¦ sale and purchase¦ set-off¦ Specified¦ subordination¦ tax¦ trading authority¦ US Person¦

Defined Terms


accrued interest

Where the agreement specifies that the consideration payable by the purchaser for the relevant asset excludes an amount on account of accrued interest (or any other amount that accrued to the seller prior to transfer but was paid after transfer and was not included in the purchase price paid by the purchaser for the relevant asset), then such outstanding accrued interest accruing prior to the applicable settlement date shall be for the account of the seller (and interest accruing on and after such settlement date shall be for the account of the purchaser) and to the extent the purchaser receives outstanding accrued interest on the interest payment date in respect of the relevant asset next occurring after the applicable settlement date or otherwise, the purchaser shall pay such outstanding accrued interest to the seller as soon as practicable thereafter. ^

agreement to purchase

The seller may sell interests in the asset as may be held by the seller which the seller agrees to sell and the purchaser agrees to buy on and subject to the terms of this agreement, as each such asset is more particularly described in, and evidenced by, an notification which has been countersigned or acknowledged in writing by the purchaser to the seller. ^


No party shall make or permit any person connected with it to make any announcement concerning this Agreement or any ancillary matter except as required by law or any competent regulatory body or with the prior written approval of each of the other parties hereto, such approval not to be unreasonably withheld or delayed. ^

Arbitration under UNCITRAL Rules (HK)

Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force and as may be amended by the rest of this clause. The appointing authority shall be Hong Kong International Arbitration Centre. The place of arbitration shall be in Hong Kong at Hong Kong International Arbitration Centre (HKIAC).

basket adjustment

If Basket Adjustment is specified to apply to a Basket then, at any time, provided that no Termination Event, Potential Event of Default or Event of Default (as such terms are defined in the Agreement) shall have occurred and then be continuing with respect to Counterparty, Counterparty may request an adjustment of the Basket (each adjustment a gBasket Adjustmenth) by providing the Calculation Agent with a notice in writing (the gBasket Adjustment Noticeh) specifying (i) a revised composition of the Basket, in the form agreed to by the parties from time to time and (ii) the Business Day (the gBasket Adjustment Dateh) on which Counterparty proposes such Basket Adjustment shall become effective; provided, however, that the Basket Adjustment Date may not be earlier than the date of delivery of such Basket Adjustment Notice. If the Basket Adjustment Notice is given later than one (1) hour before the Scheduled Close of Trading on the relevant Exchange on any day then it will be deemed to be effective on the next following Exchange Business Day.
If the Calculation Agent agrees to all the proposed terms of a proposed Basket Adjustment then (x) that Basket Adjustment shall be effective on the relevant Basket Adjustment Date and (y) the Calculation Agent shall adjust the Number of Units, Initial Price, Short Notional Amount, Long Notional Amount, Independent Amount Percentage, Reserve Amount and any other variable relevant to that Basket Adjustment as the Calculation Agent deems appropriate (in each case, effective as of that Basket Adjustment Date) to take account of the effect of that Basket Adjustment. If the Basket Adjustment Date is not an Exchange Business Day in respect of each Reference Underlyer specified in the Basket Adjustment Notice, the Calculation Agent shall make the necessary adjustments to the Basket as follows: (i) in respect of a Reference Underlyer in relation to which the Basket Adjustment Date is an Exchange Business Day, on the Basket Adjustment Date and (ii) in respect of a Reference Underlyer in relation to which the Basket Adjustment Date is not an Exchange Business Day, on the first Exchange Business Day in respect of that Reference Underlyer following the Basket Adjustment Date. ^

cap/floor transaction

One party pays a single or periodic fixed amounts and the other pays the excess (if any) of e.g. a specified floating rate, commodity price over an agreed rate or commodity price. ^


when used as a verb, means to settle at the close of business, accelerate, terminate, liquidate or cancel (including by way of automatic early termination) transactions under this Agreement and "close-out", when used as a noun, means the act of Closing-Out and an event allowing an the broker to close-out this Agreement shall allow all other affiliates of the broker to close-out any other agreements. ^


X may not transfer any of its rights or obligations under this Agreement without the prior consent in writing of Y, which consent may be withheld, granted or granted subject to conditions in the absolute discretion of Y. ^


in relation to a reference entity and a Transaction, the volume weighted average per Unit of such reference entity of any brokerage commissions, stock exchange or clearing system charges or other similar charges actually incurred by [] or any of its Affiliates in connection with its acquisition, holding or realisation of its Hedge Position relating to such reference entity and that PS Transaction. ^

document order

In the event of any inconsistency between (a) the 1st document, (b) the 2nd document and/or (c) the third document, the latter stated document from this list shall govern for the purposes of the relevant Transaction. ^

duty of care

The investment manager covenants and agrees that it shall perform its obligations and discretions under this Agreement in good faith and shall exercise a standard of care which is the higher of

(A) the standard which the investment manager (and its affiliates) exercises with respect to comparable assets and liabilities that it manages for itself, any of its affiliates and others if any and

(B) a standard which is consistent with the practices and procedures followed by reputable banks or institutional portfolio managers of international standing managing investments or advising in respect of comparable (in nature and character) assets and liabilities, except as otherwise expressly provided in this agreement. ^


Private placement to a small number of investors” (less than 50 persons) in accordance with Sub-Item C, Item 2, Paragraph 3, Article 2 of the Financial Instruments and Exchange Law of Japan (the “Law”), or private placement for “qualified institutional investors” as defined in Article 10 of Cabinet Office Ordinance On Definitions provided in Article 2 of the Law (the “Qualified Institutional Investors”) in accordance with the Sub-Item A, Item 2, Paragraph 3, Article 2 of the Law.

french insolvency

(a) it is not and was not, nor will it be as a result of the transactions the subject of this Agreement, unable to pay its debts (cessation des paiements) within the meaning of Article L.613-26 of the French Code monetaire et financier, nor will it be in difficulties, which may lead to a payment default (cessation des paiements) within the meaning of Article L.613-26 of the French Code monetaire et financier and Article L.620-1 of the French Code de commerce or otherwise insolvent;
(b) it has not entered any mandat ad-hoc, conciliation (conciliation), safeguard (sauvegarde), judicial restructuring (redressement judiciaire), judicial liquidation (liquidation judiciaire) proceedings under French law nor has any action been taken by the relevant French regulatory or judicial authorities pursuant to Articles L.613-25 and following of the French Code monetaire et financier nor has it entered any winding-up, dissolution, administration, insolvency, bankruptcy or other similar proceedings under any other applicable law nor is it subject to regulatory or judicial actions in relation with such proceedings under any other applicable law. ^

FX rate

The JPY/USD spot mid-market exchange rate as displayed on Reuters page (the gReference Pageh) as at the Valuation Time on the Valuation Date or Averaging Date, as the case may be or any successor Reference Page as determined by the Calculation Agent. If no successor Reference Page is available or, if the Calculation Agent determines (such determination to be made in good faith) that the exchange rate displayed on the Reference Page as at the Valuation Time on the Valuation Date, as the case may be does not reflect the current tradable exchange rate used by market participants, then the FX Rate shall be determined by the Calculation Agent acting in good faith. ^


means any guarantee, indemnity, letter of credit, letter of comfort or undertaking by one person giving rise to legal liabilities or suretyship, or any other obligation (whatever called and of whatever nature) to pay, purchase, provide funds (whether by the advance of money, the purchase of or subscription for shares or other securities the purchase of assets, rights or services, or otherwise) for the payment or discharge of or to indemnify against the consequences of default in the payment of, or otherwise to be responsible for any obligation or indebtedness, any dividend, capital or premium on shares or stock, or the insolvency or financial condition of another person. ^

hedge Position

with respect to any Transaction, the position in the number of Units of the relevant reference entity (or such other assets deemed by the Calculation Agent in its sole discretion to be a practicable and commercially reasonable substitute therefor for the purpose hereinafter referred to) as may be held at such time by or on behalf of [] at its discretion for the purpose of hedging its obligations under that Transaction. ^


1st party hereby irrevocably agrees to indemnify, immediately upon receipt of written demand, the 2nd party and each affiliate, officer, director, shareholder, controlling person, employee and other agency of the 2nd Party (together, the gIndemnified Partiesh and each, an gIndemnified Partyh) from and against any and all damages, losses, claims, liabilities, actions, demands, costs and expenses (including, without limitation, all legal costs and expenses) (the gIndemnified Amountsh) imposed on or incurred by any of the Indemnified Parties arising from any failure by the 1st party to perform any obligation imposed upon it in connection with this agreement. ^

ISDA definitions

This document incorporates by reference the 2002 ISDA Equity Derivatives Definitions (the "Equity Definitions") and the 2000 ISDA Definitions (the "Swap Definitions"), each as published by the International Swaps and Derivatives Association, Inc. In the event of any inconsistency between the Equity Definitions and the Swap Definitions, the Equity Definitions will govern. In the event of any inconsistency between the Equity Definitions or the Swaps Definitions and this document, this document will govern. ^

JGB rates

the retail 10 year JGB rates means the interest rate for Retail 10 Year JGB (tekiyou riritsu) which appears on the Ministry of Finance Japan web page (http://www.mof.go.jp/jouhou/kokusai/kojinmuke/index.html or any successor page). ^

limited recourset

The obligations of the issuer to pay amounts due and payable in respect of this agreement or in any other respect at any time shall be limited to the proceeds of realising any assets available to the issuer at such time to make such payment following the indefeasible satisfaction in full of all obligations owed to the secured parties in accordance with the Trust Deed. Notwithstanding any other provision of this agreement (and any transaction document or otherwise), if the proceeds available following such realisation are less than the aggregate amount payable by the issuer in respect of this agreement or in any other respect (such negative amount, the gshortfallh), the obligations of the issuer in respect of this Agreement or in such other respect will be limited to such net proceeds available to the issuer and the issuer will not be obliged to pay, and the other assets (if any) of the issuer will not be available for payment of, such shortfall, which shortfall shall be borne by the creditor, the rights of the creditor to receive any further amounts in respect of such obligations shall be extinguished and the creditor may not take any further action to recover such amount. ^

market quotation

means, with respect to one or more Terminated Transactions, an offer which, when made, was capable of becoming legally binding upon acceptance which is:

(a) made by a Reference Market-maker;

(b) for an amount that would be paid to Party B (expressed as a negative number) or by Party B (expressed as a positive number) in consideration of an agreement between Party B and such Reference Market-maker to enter into a transaction (the gReplacement Transactionh) that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transactions or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that Date;

(c) made on the basis that Unpaid Amounts in respect of the Terminated Transaction or group of Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included; and

(d) made in respect of a Replacement Transaction with commercial terms substantially the same as those of this Agreement (save for the exclusion of provisions relating to Transactions that are not Terminated Transactions). ^


Neither the creditor nor any other person acting on its behalf shall be entitled at any time to institute against the issuer, or join in any institution against the issuer, any bankruptcy, reorganisation, arrangement, insolvency, winding-up or liquidation proceedings, appointment of a liquidator, administrator or similar official or other proceedings (whether court based or otherwise) under any applicable bankruptcy, insolvency or similar law in connection with any obligations of the issuer relating to this agreement or in any other respect, save for lodging a claim in the liquidation of the issuer which is initiated by another party or taking proceedings to obtain a declaration or judgment as to the obligations of the issuer in relation thereto. ^

sale and purchase

Against payment and subject to receipt by the seller of the consideration the seller shall sell with full title guarantee its whole rights, title and interest in and to each asset and the purchaser shall purchase each such asset with effect on and from the effective date applicable thereto on and subject to the terms of this agreement. ^


Following the occurrence of an Event of Default under this Agreement or an event of default, termination event or similar condition (howsoever described, which for the avoidance of doubt, includes the occurrence of an Additional Termination Event under an ISDA Master Agreement between the customer and the broker or any of its affiliates) under any other agreement between the broker or any of its affiliate and the customer, the broker may set off any obligation (whether matured or unmatured, actual or contingent, present or future) owed by the customer to the broker or any of its affiliates under this Agreement or any other agreement whatsoever between the customer and the broker or any of its affiliates against any obligation (whether matured or unmatured, actual or contingent, present or future) owed by the broker or any of its affiliates to the customer. If an obligation cannot be reasonably ascertained, the broker may in good faith estimate that obligation and set-off in respect of that estimate which estimate shall be binding on the customer. ^


“Specified” means, in relation to a term defined in the Agreement, the additional information required for the defined term is as stated or deemed stated according to the provisions of the Agreement (whether the additional information is stated or deemed stated directly or indirectly as a result of the designation of one or more pieces of information, including where no information is stated with the consequence that the designated fallback term shall be treated as the designated information) but, for the avoidance of doubt, the specification shall not operate to create a new defined term, and “Specify” or “Specifies” shall be construed accordingly. ^


The rights or claims of the creditor against the issuer which may arise under, out of, or in connection with this agreement or in any other respect, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred shall be subordinate, junior and inferior in right of payment, priority and enforcement to the prior payment, priority and enforcement of all debts, liabilities and obligations of the issuer arising under or pursuant to the Trust Deed (the gPrior Obligationsh). The terms of such subordination shall not be modified in any way that adversely affects the Prior Obligations, and any such modification that has an adverse effect on the Prior Obligations shall be null and void, subject to applicable laws now or hereafter in effect affecting creditorfs rights generally ^


in relation to a reference entity and a Transaction, the volume weighted average per Unit of such reference entity of any transfer or registration stamp duty, capital gains or similar taxes but excluding any tax on income or similar taxes, actually incurred by [] or any of its Affiliates in connection with the acquisition, holding or realisation of the Hedge Position relating to such reference entity and that Transaction. ^

trading authority

The customer hereby authorises the broker to act in relation to the securities and cash transactions on instructions (gInstructionsh) which the broker believes in good faith to have been received from persons whose names and signatures are set out in a list which shall be provided and updated from time to time by the customer for such purpose in a form acceptable to the broker. Until the broker receives written notice to the contrary, the broker is entitled to assume that any of those persons continue to have full and unrestricted power to give Instructions on the customerfs behalf and that any such Instructions (whether given in electronic or written form) have been so authorised by the Customer.

The broker needs not act upon Instructions which it reasonably believes to be contrary to law or regulation and it is under no obligation to investigate whether any Instructions comply with any applicable law or regulation, which, for the avoidance of doubt, shall be the sole responsibility of the customer.. ^

US Person

A person residents in the United States of America (including the States and the District of Columbia), its territories, possessions and all other areas subject to its jurisdiction (the “United States”) nor to any citizen, national or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States, or any estate or trust the income of which is subject to United States federal income taxation regardless of its source.


The above notes are intended to highlight issues and provide only general outlines and not intended to be comprehensive nor legal advice. Where applicable, the same should be read in conjunction with, and are qualified in their entirety by, the full provisions of the relevant ISDA provisions and definitions. They shall never be used in place of professional advice. We accept no responsibility for any loss arising from any action taken or not taken by anyone using this material or using this material in conjunction with any ISDA documentation in reliance thereof. If you have any question, please contact us.

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