Contract Adjustment

A contract adjustment is the change a firm makes to an open derivative position when an event affects the instrument it references — a split or consolidation of the underlying, a distribution, a change to the index a contract tracks, or the underlying ceasing to be traded at all. The clause allows the firm to alter position size, opening price or contract terms so that the exposure is comparable to what it was, and to close the position where no adjustment would achieve that. The point worth carrying is that the position can change, or end, without the market having moved. The determination is made by the firm, the terms usually describe it as final, and the reference for it is the treatment applied in the underlying market rather than anything visible on a chart. Two things follow: an adjusted position may no longer match the size a stop or a limit was calculated against, and a closure under this clause is not a stop-out, so it is not covered by the clauses that govern one. Both are stated in the agreement rather than announced by the platform.