An Overview of Which Market Disruption Events to Include for the Most Common Asset Classes under a Medium-Term Note Program -
A movie scene showing a day in the life of a calculation agent would likely not survive the cutting room floor of a film production company. However, on the trading floor of a major financial institution (or on some other floor perhaps in a different building altogether) on which a medium-term note (or “MTN”) is structured and sold, the role of that calculation agent becomes more important when determining the value of that structured note on a given day. The drama occurs when a certain underlying asset or assets to which note performance is linked cannot be properly valued due to the occurrence of a disruption in the relevant market. This is when the calculation agent springs into action, perhaps even soliciting advice from its in-house or external counsel to ensure the notes comply with the valuation fallbacks contained in the base documents. Although the aforementioned scenario is based on a true story, the discussion below will focus on how we save our hero, the calculation agent, by including a broad enough definition of “market disruption event” with respect to each underlying asset class contained in the corresponding MTN program.
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