The Role of Calculation Agents in Capital Markets

What is a Calculation Agent?

A calculation agent is the party that performs calculations that are set out in a transactional document which requires calculations for its operation. Historically this role was performed by:

• Investment banks (for derivatives),
• Agent banks (for bonds), or
• If there was complexity, the responsibility might have been left with the issuer itself.

An independent calculation agent could be a bank, but there are also specialist firms providing this service, staffed by people with extensive experience in the types of transactions for which they are doing the calculations.

What types of transactions benefit from the use of an independent calculation agent?

Because errors almost always work against the issuer, rather than in their favour, an independent calculation agent can add value to any situation in which there is any degree of risk that the issuer itself could get the numbers wrong. Basically, the more complex the calculations, the more likely an independent calculation agent will be useful.

What are the key roles an independent calculation agent plays?

An independent calculation agent is involved in three key stages of the transaction:

1. Before issuance, reviewing the transaction documentation in detail, to ensure it works the way it is intended, and building the models needed to run the calculations over time.
2. During the life of the transaction, performing the required calculations and helping the company understand and communicate the results to interested parties.
3. At the end of the transaction, performing the final settlement calculations, to ensure the parties get the fair outcome set out in the transaction documentation… no more and no less.