Derivative Instrument Definitions Clause Samples

Derivative Instrument Definitions. Derivative instruments and transactions can be structured in numerous forms with various characteristics. For the purposes of this Plan, the Companies recognize the two following industry definitions of “derivative instrument”: 1. The definition according to Generally Accepted Accounting Principles (GAAP):1 A financial instrument or other contract with all three of the following characteristics: • It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. • It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. • Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. 2. The regulatory definition:2 An agreement, option, instrument or a series or combination thereof: (a) To make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or (b) That has a price, performance, value or cash flow based primarily upon the actual or expected price, level, performance, value or cash flow of one or more underlying interests. Examples of derivative instruments include, but are not limited to, options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, swaptions, forwards, futures and other agreements, options or instruments substantially similar thereto or any series or combination thereof. The following are regulatory definitions3 with respect to each of the foregoing instruments: