The user's guide for the 2002 equity derivatives definitions will be circulated among the International Swaps and Derivatives Association's equity derivatives definitions working group within the next couple of weeks. The final version is expected to be released this summer, according to Glen Rae, v.p. and general counsel at Goldman Sachs in New York and chairman of the working group. The guide will provide a section-by-section analysis of each article of the definitions and will also discuss certain issues that pop up in customized confirmations.
For example, the guide will give traders suggested language for dealing with barrier provisions that can be triggered at any time during a regular trading session. Rae explained that typically barriers are triggered using the closing price, but in many customized transactions, an intra-day price is used, so the language on the confirmation needs to be altered. Rae said other similar situations include currency disruptions, where a firm may have difficulty settling a trade because of a lack of availability of a currency.
In addition, the user guide will include flow charts that have been prepared by JPMorgan that show the application of the new definitions for both cash- and physically-settled options. The charts are available in DW's Web archive (www.derivativesweek.com).
